Techniques used in the binary options traders
With Binary Options A zero-risk strategy is the dream of any financial investor. While it is impossible with any investment, binary options can get you closer than anything else. When you invest, there is always some risk. Despite all efforts to predict what the market will do next, nobody has yet found a strategy that is always right. Sometimes, the market moves in unpredictable ways and does things that seem irrational.
In hindsight, we often find good explanations for these events. As a trader, you have to avoid letting this hindsight bias confuse you. When a trading day is over, it is easy to say that this event moved the market the strongest. But when a trading day begins, it is often almost impossible to predict which of the many events of the day will have the strongest impact on the market and how it will influence the market.
Even beyond the stock market, financial investments always include some risk. But binary options offer a few tools that allow you to get relatively close to zero risk.
Most binary options brokers offer a great tool: Demo accounts work just like regular accounts but allow you to trade with play money instead of real money. In the risk-free environment of a demo account, you can learn how to trade. You can try different strategies, find the one that suits you the best, and perfect it.
You can wait until you switch to real-money trading until you have a solid strategy that you know will make you money by the end of the month. While many stock brokers offer a demo account, too, binary options have one great advantage: Once you have traded a strategy with a demo account and turned a profit for a few months in a row, you know that there is a very high chance that you will make a profit when you start trading real money, too. There will still be some risk, but binary options have helped you to eliminate as much risk as possible.
For those still looking for zero risk trades, Arbitrage is another option. The breakout strategy utilizes one of the strongest and most predictable events of technical analysis: Breakouts occur whenever the market completes a chart formation.
These completions indicate significant changes in the market environment. The market will pick up a strong upwards or downwards momentum, which means that many traders have to react to the change. Since most traders anticipate the payout, they will place orders that automatically get triggered when the market reaches the price level that completes the price formation. These orders intensify the momentum even more. Digital options offer a number of strategies to trade the breakout.
Here are the three most popular strategies:. When you anticipate a breakout, wait until the market breaks out. If the breakout happens in an upwards direction, invest in a high option; if the breakout happens in a downwards direction, invest in a low option.
Use an expiry equivalent to the length of one period. Trading the breakout with one touch options. Breakouts are strong movements, which is why they are perfect for trading a one touch option. One touch options define a target price, and you win your trade when the market touches this target price.
Once you see the market break out, invest in a one touch option in the direction of the breakout. Trading the breakout with ladder options. When an asset breaks out, invest in a ladder option in the direction of the breakout. Choose a target price with which you feel comfortable but that still provides you with a high payout. All of these three strategies can work. Choose the one that best matches your personality. There are hundreds of strategies that use Bollinger Bands.
Regardless of which strategy you use, there is almost no downside to adding Bollinger Bands to your chart. Even if you do nor trade them directly, having three additional lines will not confuse you.
On the contrary, it will subconsciously influence to make better decisions. Nonetheless, we will now present three strategies that not only feature Bollinger Bands but use them as their main component.
Understand these strategies, and you will also be able to use Bollinger Bands in your strategy. This is the simplest strategy, and the one with the least risk. It can be explained in two simple steps:. There is one thing you should know, though. Since every new period moves the Bollinger Bands, what is the upper range of the current Bollinger Bands might not be the upper range of the next periods.
A quickly rising market will push the Bollinger Bands upwards, too; and a quickly falling market will take the Bollinger Bands down with it. Because of this limitation, the strategy works best if you keep the expiry of your binary option shorter than the time until your chart creates a new period. If there are 30 minutes left in your current period and the market approaches the upper end of the Bollinger Bands, it makes sense to invest in a low option with an expiry of 30 minutes or less.
If you want, you can also double-check your prediction on a shorter period. Switch to a chart with a period of 15 minutes, and if the market is near the upper range of the Bollinger Bands, too, you know that there is a good chance that it will fall soon.
If it is in the middle of this trading range, however, you might consider passing on this trade. You might also consider upgrading this strategy to trade binary options types with a higher payout.
By adding a momentum indicator, you can invest in option types that require a strong movement. To understand how to add this indicator, consider the example of our next strategy. The middle Bollinger Band has special characteristics.
While it offers a resistance or support level, the market can break through it. When it does, the Band changes its meaning. Both events change the entire market environment. When the market breaks through the middle band, it suddenly receives enough room to move to the outer band. This means you know the direction in which the market is likely to move and the distance, which is a great basis for trading a high-payout binary option.
For this strategy to make sense, you have to use a one touch option with a target price that is within the Bollinger Bands. On the other hand, the expiry has to be long enough to give the market enough time to reach the expiry. Finding the right mix of closeness and enough time can take some experience. You can also use momentum indicators such as the Average True Range ATR to provide a mathematical basis for your estimate.
The market is highly likely to move beyond the outer Bollinger Bands. This knowledge is a great basis for trading low-risk ladder options. Ladder options define a number of different target prices, usually five or six. Some of these prices are above the current market price; some are below it; some are close, some are far away. Ladder options allow you to make this prediction and win a simple trade. To execute this strategy well, make sure that the period of your chart matches your expiry.
Bollinger Bands change with every new period, and a target price that is outside the reach of the Bollinger Bands during the current period might be well within their reach during the next period. When you trade a ladder option with an expiry of one hour based on a price chart with a period of 5 minutes, so many things can change before your option expires that the Bollinger Bands become almost meaningless. By matching the period of your chart to your expiry, you guarantee that the Bollinger Bands stay the same until your option expires.
The volume is one of the most under-appreciated indicators. Combined with binary options, a volume strategy can create great results.
The trading volume is a simple yet important indicator. The volume indicates how many assets very traded during a period. The direction of these trades is unimportant to the volume.
As you can see from these examples, the volume only makes sense in relation to preceding periods. A volume of says nothing until you know whether the preceding periods featured a higher, lower, or similar volume. A volume strategy uses the volume of each period to create predictions about future price movements:. Binary options are primarily short-term investments. But if you want to invest for the long term, binary options have a lot to offer for you, too.
While binary options are mostly short-term investments with expiries of a few minutes to a few hours, most brokers have also started to offer long-term options that allow you to make predictions for the next months and the next year. You predict whether the market will trade higher or lower than the current market price when your option expiries.
A long-term binary options strategy should be based on trends. Over the course of a year, long-term trends dominate the market and dictate what will happen next.
Identify these trends, and predict that they will continue. To avoid weakening trends, you can use technical indicators such as the Money Flow Index MFI , which allow you to identify trends that are running out of momentum.
When you trade a long-term prediction with regular assets, you can average a profit of about 10 percent a year. That is a great result, but binary options can do better. Assume that you have found a stock of which you are almost completely sure that it will trade higher one year from now.
Take a look at the current price charts of Google, Amazon, or Tesla. Such stocks would offer the ideal basis for such an investment. When you predict that these stocks will rise with binary options, you can get a payout of about 75 to 90 percent — in one year.
Regardless of how well these stocks do, when you buy them directly on the stock market, you will never make a profit that rivals this return. Now, of course, you have to account for risk.
When you lose your trade — however unlikely you think that this event may be — you lose all the money you invested. This is why it is a bad idea to invest all your money in a single trade. Spread your money over multiple stocks, currencies, markets, and commodities, and never invest more than 5 percent of your overall account balance in a single trade. Also, never invest all your money. With this strategy, you should still be able to make a return that is higher than what you would make with stocks, but you reduce your risk.
With digital options, the straddle strategy is easier and more profitable than with other types of financial assets. A straddle strategy follows a simple goal: With conventional assets, this strategy was difficult to execute. Traders had to buy short and long assets at the same time and hope that the profit from the successful investment outweighs the losses from the unsuccessful one. With stocks, for example, traders would be a stock and short it at the same time.
They would then set up stop-losses for both trades. With conventional assets, this strategy was a mess. There were fees on every trade that complicated things, and it was impossible to make two investments simultaneously.
The resulting time delay meant that a straddle was never perfect. Finally, the profit from the winning investment was often insufficient to outweigh the losses from the losing trade.
Binaries have taken the straddle and packed it into one asset — boundary options. Instead of having to invest in two assets at the same time which is impossible , boundary options allow you to create a straddle with a single click. Boundary options define a price channel around the current market price. Both target prices of the price channel are equally far from the current market price, which means that you automatically create a perfect straddle. Many binary options brokers offer two types of boundary options:.
Choose the type of boundary option that you like best, and you can easily trade the straddle strategy with binary options. To execute a binary options strategy well, you have to ban all emotions from your trading and do the same thing over and over again like a robot. Some traders took the next logical step and let a robot do all of their trading. A robot falls into the second category. Robots are computer programs. These computer programs are trained to execute a trading strategy and invest on behalf of a human trader.
Robots monitor the market, 2. Robots find profitable trading opportunities, and 3. Robots invest in these opportunities. When you use a robot, you outsource your entire trading process to a computer program. You can step away and literally make money while you sleep. Robots never miss an opportunity. Humans need sleep and have chores to do; robots do not. They can spend the entire day trading, which means that they can take advantage of every opportunity.
With a profitable strategy, more trades mean more money, which is great for you. Robots do not make mistakes. Humans get exhausted; robots do not. They can execute a strategy for years without making a single mistake. Robots can monitor hundreds of assets simultaneously.
Humans can only focus on one thing at a time; robots can focus on millions of things. This is why robots can monitor hundreds of assets. Monitoring more assets leads to more trades, and more trades, with a winning strategy, lead to more money. Combined, these three advantages can make you a lot more money than if you traded for yourself. It does increase risk however.
If a strategy starts to fail, a robot will not pause and allow time to make adjustments 0 it will continue making trades that fit the criteria. Performance must be manually checked too. Read about specific providers on our robots and auto trading page. Boundary options deal with a range of price levels of an asset. In boundary options, predefined upper and lower price levels will be specified by your binary options broker.
You are free to select the expiry period. If you select a larger expiry period, the range of the asset will expand i. As a trader you have to select from the two options: One where the price is expected to go higher than the upper price limit and the other case where the price level is expected to end less than the lower price limit.
It is a method by which a broker can add to their own margins and protect themselves during particularly volatile periods, or from one-sided trading sentiment. A percentage figure will be specified by your binary options broker which indicates the payout. If your prediction is correct you will make a profit equal to the predefined percentage of the amount invested. The profit is credited to your trading balance immediately after the result of the trade is decided.
However, in case your prediction turns out to be incorrect, you will lose the money invested in the trade. The profit percentage depends on the broker and you may find different binary options brokers offering different payouts for the same asset.
It is different from the traditional High or Low trading because in that case the upwards or downwards price movement matters. No binary options signal provider offers boundary options signals and you will have to use your own knowledge and analysis. If you want to trade boundary options, the first thing to do is to gather information about the asset you want to trade.
First of all you should study how the price of the asset has been moving for the last few days. You should have an overall idea if the asset is volatile or stable. Next you must be aware of all the news related to the company. This can drastically improve your winning ratio. For example, let us assume that Apple is launching the next version of its flagship mobile phone today. If the product fails to impress the audience, the stocks may take a dip.
There is a small chance that despite such a major event the stock prices stay stable. But if you are not aware of the launch of the new product by the company, you will miss out on the opportunity to make money.
It is therefore, highly recommended to stay updated with all the news like quarterly report, hierarchy reshuffle, product launch etc. As binary options markets have grown, so too have the demands and requirements of traders. Brokers were also keen to offer a product that could be traded in both flat and highly volatile markets. In most cases, the barrier level is set by the broker.
At certain brokers however, the trader can set the barrier. It could be higher than the current asset value, or it could be lower. These images represent successful Touch and No Touch trades;. Traders looking to utilise Touch options need to pay particular attention to their choice of trader. Firstly, some brokers do not offer them at all.
Touch options at certain other brokers are not particularly flexible. Nor are the target levels. There are however, some brokers which offer a huge amount of flexibility. Here, traders can set their own target levels payouts adjust accordingly. This offers tremendous opportunity to use advanced trading techniques. Advanced traders will be able to use One Touch options successfully throughout their trading day, others may specialise.
For example, volume and market volatility might be expected to change significantly after a particular data release or event. Likewise a market may run flat for a period running up to an announcement — and be volatile after. If you lose, start with the last set of bids: The rules for entry are the same as with the conservative strategy: And remember, You have to stick with the entry rules. Aggressive Strategy Look at the chart below, how many price cycles do you see?
Look at the chart below: Now it gets complicated and wonderful: The Fibonacci is drawn between points 1 and 2 in light blue and marked on value charts the last high and low, 1 and 2 respectively. Now we have the levels and wait for the retracement which can be a wick, or a full candle.
Above the retracement area is the white box marked by 3, and the green candle underneath touches that box. The setup is ready when the retracement candle is followed by a red candle in the direction of the trend. This is marked by the light blue rectangle. So this is our first breakout candle of this specific sequence. This is marked by 3 PUT on the chart above.
We enter PUT 10 seconds before the close of this candle because it will be followed by a bearish candle, or bearish candles which will reach level Fibonacci level This trade is represented on the chart by 1 PUT. The last bearish candle hits Fibonacci level As usual leave comment below if you have any questions. Click here to read my next and last post in this mini series Further reading: But by simply watching the candle it seemed that price was apt to fall a bit.
It was also heading into an area of recent resistance so once it hit 1. For this trade, the high of day initially made on the 2: I had intended to take a put option at this level on the 3: And then for maybe seconds, my price feed was delayed and by the time it the connection was recovered it was over a pip above my intended entry. I did end up using the 1. I took a put option on the touch of the level. Once again, I used the current daily high of 1.
But price busted through and this trade lost. Another fifteen minutes passed by before I was able to take another trade set-up. This time, I used 1. This trade was probably my favorite set-up of the day and was aided by the fact that the trend was up. It turned out to be a winner.
For put options at this point, I had an eye toward 1. So I decided to take a put option at the touch of 1. This trade turned out to be a nice four-pip winner. My final trade of the day was a call option back down at 1. This was another good four-pip winner. After that I was waiting for price to come up and see if 1. Also, I was feeling a bit fatigued by this point and decided to call it quits for the day.