Top 5 Binary Option Strategies

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Top Five Successful Strategies For Trading Binary Options

If you are trading without a strategy or a tactic to help you with binary options, you might as well

The article was written by Connor Harrison from Binary Brokers (BBZ). BBZ makes an effort to educate their traders so that they can understand recommendations regarding binary options, international legislation, risk management and other issues related to trading.

Trading in binary options is one of the popular trends in the financial markets today. Both experienced and novice traders are rushing to include them in their investment portfolios. Just like any other trading platform or business, you must have a strategy to use in order to consistently be making money.

If without a strategy or a tactic to help you trade in binary options, you might as well consider yourself gambling. Relying on luck is not very safe in trading binary options as it will eventually not work for you and might end up losing all of your investment. You will need a solid technique that you can use every time, which will help you make the right predictions. Moreover, you need to employ a strategy that you understand well and which consistently increases your chances of winning.

Bet or Trade?

Strategies are generally categorized into two groups. These categories are;

  • Betting model based strategies – In these strategies, it is assumed that the investor will employ betting strategies, whether they are familiar with financial markets or not. These strategies use several tactics that are designed to increase the probability of winning. Strategies based on the news are the best example in this category.
  • Market behavior strategies – In these strategies, the investor relies almost wholly on technical and statistical data that are readily available or that which they have researched and worked on. While these strategies are a bit harder to understand and master, they are the most reliable ones since they are objective. There are techniques developed to help you understand some of the data, such as charts and which will make it easier for a new trader.

I – Fundamental Analysis Strategy

This strategy is concerned with the analysis of the behavior of the overall performance or attributes of a company. As an investor or trader in binary options, you are interested in knowing about the health of the balance sheet, income statement and the cashflow statement of the company before you consider buying an option. The other factors that you should check out include the employee and the business partners’ satisfaction. In short, this strategy tries to look at the overall picture of the business they want to invest in their stock and at times the overall industry.

II – Technical Analysis Strategy

This is a quite popular strategy in options trading. It is mainly concerned with the study of the past, using different parameters such as charts in order to predict the future price of an asset. This method is not concerned with getting the intrinsic value of an asset. It’s quite useful in options trading because as a trader, you don’t have to delve into the company’s financial statements. Among the tools used in technical analysis include Bollinger bands and Moving Average among others.

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III – Basic Options Strategy

This strategy is quite popular among options traders. It is designed and employed by a trader to safeguard him/herself from incurring total losses on their investments. You will pick an underlying asset or currency that you are interested in and then if the market movement of the strike price is heading towards a good direction, say upwards, you place a call option. At the same time, you will place a put option on the same asset.

Let’s use an example:

The GBP/USD currency option is going at 1:4000. You place the call option of $100 which will expire in 30 minutes. The payout is 70% and 15% if you lose. In the first 15 minutes the asset is at 1:4015 which is good so far. At this specific time, you buy a put option for the same asset at 1:4015 expiring in 15 minutes at $100. The payouts are the same as those of the call option.

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At the end of the 30 minutes there will be two outcomes;

  • Your 30 minutes call option wins and the 15 minutes put option losses. You will have earned $185 from the 70% call winnings and the 15% consolation refund from the put option (the opposite can happen, put option wins and call option losses).
  • Both the call and the put options end up in the money. You will get $340 ($170+$170). Since it’s almost impossible to lose on both options, the general risk of loss in this strategy is only $15 in order to win $140.

IV – Algorithmic and signals

There are apps which are sold and which are very good at trading or analyzing the market data. You might find it appropriate to invest in such an app. This app is installed in your computer and gathers data that you want and then analyzes it to come up with the best possible outcomes. Technical and fundamental analysis data are used here.

The computer will then pick a trade for you to trade in. You could even go ahead and design the app to be actually trading for you. You will however need to be regularly updating the raw data that the app picks its analyzing details from.

V – Co-integration Trading Strategy

There could be two stocks in the market that have a high correlation relationship. This could be because they are in the same industry and are traded in the same market, hence affected by many factors the same way. Given the high correlation between such a pair of stocks, you will find that whenever there is a gap between them it will close soon after. The gap can be caused by the weakening of one stock temporarily. The main task here is to identify the gap.

After identifying the gap, you should buy the call option for the stock that is weak or a put option for the asset if the stock higher in price is bound to come down. Eventually, the two assets will come to the correlation path and that should be the ‘point of exit’.

Final Word

Strategies, just like investment options, are many and you could end up with one which gives you consistent winnings. If you are a new trader, research well and identify the one strategy that best suits your trading portfolio and pattern. If you are a bit more experienced, you can create your own strategy or combine two existing ones to form a hybrid.

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Top 5 Binary Options Strategies for Beginners

If you are new to binary options trading, it may be wise to research what are the best binary options strategies available to you.

While there are several strategies available, not all of them are suitable for beginners in South Africa and not all of them will help you to achieve your investment objectives.

So it is always a great idea to take the time to research the different strategies to ascertain which ones are more likely to be appropriate for someone who is new to binary options trading.

List of 5 of binary options strategies for beginners include the Trend strategy, the Pinocchio strategy, the Straddle strategy, Fundamental analysis and the Hedging strategy.

The Aim of Binary Options Trading in South Africa

With binary trading in South Africa, the aim is to make an educated guess about the price that you think a certain asset or asset-pair will reach within a specific time period. As the word “binary” implies, with this type of investment, there are only two possible outcomes – gain or loss.

In other words, either you will gain everything or you will lose everything based on what you had predicted about the price of that particular asset or asset-pair. The two types of binary options are call options or put options.

A call option gives you the option of buying an asset at an agreed price on or before a certain date. A put option gives you the choice of selling an asset at a particular price (strike price) on or before a certain date (expiration date).

If you believe that the price of the underlying asset is going to go up within a certain time frame, then you would invest in a call option. By so doing, you would make a profit when the price goes up because you would be able to sell that asset at a higher price than you bought it for.

On the other hand, if you believe that the price of the underlying asset will fall within a certain time frame, then you would purchase a put option which gives you the right to sell that asset at an agreed price within a given time period. Now let’s briefly discuss some of the top binary options trading strategies for beginners.

The Trend Strategy – South Africa

As the name implies, the Trend strategy is based on price trends. Over time, investors will notice that there are certain patterns in how the price of an asset moves.

For example, you may note that in certain circumstances, there is a downward trend, in other circumstances the price may remain relatively stable, and in other circumstances, there may be an upward trend in price. The aim is to study the trend and to make your trade based on the change in direction of the moving average price of the underlying asset.

You look at the moving average of the price of the asset over a certain period of time and make your trade when you notice a change in the direction of the moving average, ensuring that the trade is for the opposite direction.

The Pinocchio Strategy – South Africa

This strategy is a simple one and is used whenever the investor expects the price of the underlying asset to increase or decrease drastically in the opposite direction.

If the price is expected to increase drastically then a call option should be purchased, and if the price is expected to decrease drastically, a put option should be purchased. In the candle bar diagram, the wicks are usually very long indicating that the market may be lying (Pinocchio’s nose grew longer when he lied) so we should trade in the opposite direction.

The Straddle Strategy to Use as a South African Trader

This also falls in category of top 5 binary options strategies for beginners. Straddle strategy is most suitable during periods of high market volatility and is based on the expectation that breaking news or other important event will cause a sudden change in the price of an underlying stock.

In this case, both a call and a put option are placed on the same asset. Place one option first (call or put) and then when the price change occurs, place the other option (call or put).

The Fundamental Analysis Strategy – Trading in South Africa

Fundamental analysis involves looking at the smaller entity to gain insight into the probable performance of an underlying asset. This is especially applicable to binary options trading of underlying stocks.

The fundamental analysis basically involves the scrutiny of the organization’s financial performance in order to make an educated guess about the most likely direction that that asset will take under the prevailing market conditions. This method requires that the trader understands how to read and interpret financial statements.

So, this is suitable for beginner traders who have at least a basic understanding of how to analyse financial reports.

The Hedging Strategy for Traders Beginners

Hedging is a method of trading that helps to protect the trader from excessive losses. It involves setting up accounts that will offset any possible losses that the trader may make.

This strategy is perfect for beginners who want the benefits offered by binary options trading, but who cannot afford to rack up huge losses.

Conclusion – Top 5 Binary Options Strategies for Beginners

No matter how new you may be to binary options trading, it is possible to make gains and to minimize losses by choosing the right strategy.

Although there are several binary options trading strategies for beginners, some of the most appropriate strategies include the trending strategy, the Pinocchio strategy, the straddle strategy, the fundamental analysis strategy and the hedging strategy.

All these strategies, except the fundamental analysis strategy, involve the use of technical analysis as a means of trading. Although it is possible to make sizeable gains from binary options trading, it is wise to remember that all investments involve a level of risk. Therefore, it is best to conduct some amount of research before embarking upon binary options trading.

Binary options trading strategies for beginners should ideally begin with the establishment of a demo account. This will help new traders to acquire a feel and a good understanding of how binary options trading works, prior to investing actual cash.

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