Compared to many other types of assets or derivatives trading with binary options is simple. Why? Because when signing up for a binary option, all you have to do is decide whether or not the underlying asset will be above or below a certain price once the option expires.
That means, you have a 50% chance of making the right decision. But the other 50% pose a pretty high risk of losing the investment. If your decision was wrong, the entire option goes valueless.
Can a Binary Options Strategy Really Be Successful?
That means that the option has two sides to it: It can be really lucrative, but if worse comes to worse, it can cause a total financial loss. It all comes down to avoiding poor decisions.
But is that even possible with binary options? Some people even put them on a level with gambling, where everything depends on a digital RNG – but experts for all-or-nothing options are sure: With the right strategies, there are better chances for making good decisions.
Strategies to Use for Binary Options Trading
No matter what kind of asset or derivative you trade with: A clear strategy helps you decide on when to step into or out of a trade. The same goes for binary options.
If you use a strategy that is leading you the way, you can keep a cool head and reduce the risk of loss. The following trading strategies work well for Binary options trading:
1. Trend-Tracking and Trend Reversal
Trends are a good indicator for traders. If you´re planning on tracking trends in order to find a perfect entry or exit for an option, there are two possible approaches:
Either you assume that the upward (or downward) trend will continue or you assume that the trend has been going on long enough for it to be time for a trend reversal. No matter how realistic the scenarios really are, it is crucial to remain to your lineage.
2. News Events and Straddle Strategy
Some traders merely base their decisions on economic and political events. If you are interested in economic correlations and political events anyway, thoroughly following the news might be a lot less complicated for you than doing a technical chart analysis.
As economic and political events are very important factors on the exchange markets, they are usually a pretty good indicator for how the prices may develop. It does take a basic understanding of the market itself, but can be a lot of fun for experienced traders.
If you´re expecting a certain value to go up after a news event, if can be smart to wait for a while. Options are usually easier to predict when the price of the underlying asset is low.
By straddling you combine the news strategy with trend reversal. This strategy works really well for volatile markets and is therefore a popular strategy for binary trading.
3. Fundamental Analysis
Just like the news, company details can give you a lot of information about a certain asset that you´d like to put an option upon. An in-depth review will help you understand how the underlying asset will behave.
In order to make sure that your strategy works, you should place some smaller bets on the asset. Does the underlying asset behave the way you predicted it in your binary option, you should be good to go.
4. Swing Strategy
The swing strategy is very similar to asset-tracking and trend reversal. The only difference is that using a swing strategy, you assign a certain typical price corridor to the asset in question.
If the price line is getting close to the usual swing high, it might be time to sell. If it gets close to the typical swing low, it should be a perfect time to enter an option.
Trading strategies are never 100% bulletproof, but sticking with one specific strategy gives your trading behavior a uniform cluster, which leads to clear decisions and a smaller risk.