3 Most Popular Binary Trading Strategies
The Binary Options Straddle Strategy
Binary options trading has become increasingly popular in recent years, part of this increased interest is due to the fact that it is relatively simple to trade in these options. All binary trades involve predicting a price movement; you can only choose one direction for each trade. It is this which provides the clear cut finish position; you will either end up with your initial funds and a healthy profit, or you will end up with nothing. It can seem that the success or failure of your trades is simply down to luck; however, careful market research and the adoption of tactics can make a huge difference to your success rate. The binary options straddle strategy is designed to help you cover both directions in regard of the price movement. Providing your winning trade has a profit which is higher than the initial investment cost of both trades; you will end up in the money.
This is one of the simplest approaches to binary trading. Simple select the asset you have been watching and buy an option which allows for the price of the asset to increase. As soon as you have completed the purchase of this trade you then buy a second trade which assumes the price will decrease. It does not matter if the expiry of one trade is three hours and the other is half an hour, all that matters is that you do some basic math first. The profit on either trade must be higher than the cost of purchasing both trades. This means that if one trade ends up being right; which is almost a certainty, you will cover the cost of both trades and make a small profit. If both trades happen to be correct then you will have doubled your rate of return. It is unlikely that this will happen as the price would need to move suddenly and dramatically in a different direction.
It is important to note that the terms of the two trades should be as close to each other as possible. At present it is not possible to purchase two identical but opposing trades from any broker. However, you can purchase one trade and then, a moment later purchase a second trade moving in the opposite direction.
The binary options saddle strategy can help to protect your funds and reduce the risk in trading in the binary market. You may find that it is better to place higher value trades to ensure you finish in the money; the following example illustrates this:
You purchase one trade for $10 at an eighty percent rate of return. You then purchase the second trade at the same rate of return but in the opposite direction. If one trade is successful you will earn $8 profit; the funds returned to you will be $18. However, it will have cost you $20; even though you have successfully straddled the trade you will have lost money!
There are two alternative scenarios:
The funds you put on one trade should be of a higher volume than the other trade; simply pick the trade you are most confident about. In the above example this would mean one trade at a cost of $20 and one at $10. The $20 trade will generate a profit of $16 giving you $36 in your pocket. The cost of buying both trades was $30; leaving you with a $6 profit!
The second trade operates at a different rate of return to the first; this is likely because they cannot be placed at exactly the same time and one trade carries more risk to the broker than the other. The higher reward trade can offset the cost of the second trade. However, it is possible for both trades to finish in the money, or out of the money; whilst this scenario may not be particularly likely it is possible and should be considered. The key to successful trading, even when using the binary options straddle strategy, is to monitor the markets.
Binary Options Scalping Strategy
This tactic has been developed and utilized on many occasions to return respectable profits from binary trading. In fact, it is similar to and usually consider to be day trading; but at a much faster pace. The principle behind a binary options scalping strategy is to monitor the market and make very short term trades; you will not be intending to make any large returns on these trades; most trades should last less than an hour. However, if you place multiple trades throughout the day you will be able to generate a significant income from the many small returns.
In many ways this is a good way of trading without exposing yourself to too much risk; every trade is short and the profit is small; but this also means the risk factor is lower. There is little opportunity for the trade to move in the wrong direction. Of course, to generate a good return on your investments for the day you will need to place as many trades as possible; this can range from just ten trades to hundreds of them. As with any type of trading, there are risks which you must be aware of:
The Right Approach
To successful implement a binary options scalping strategy you will need to have decided upon your exit point before you start a trade. This is to prevent you from getting greedy and holding on for a greater profit; the result is inevitably a price direction change and a loss of your investment. By knowing when to end your trade you can ensure your profit potential is maximized.
As this type of trading requires you to be flexible and adapt quickly it is important to trade in the right assets, currencies tend to be one of the best ones as they are considered extremely liquid.
The binary option scalping strategy is an excellent method of trading alongside other trades; it allows you to make a profit while you are studying the market looking for strong trends. In effect, you need to place short term trades using the current trend and the assumption that this trend will continue for a few minutes. Your trade can be small and the rate of return much lower than other types of strategies. However, any return on a series of successful trades will quickly multiple into a substantial profit.
Although this tactic may appear to be simple, it is essential to have a good understanding of the market and the different types of movement which are possible. Good returns can be made when a price breaks away from the norm or when it is hovering near its normal boundaries. In fact, the binary options scalping strategy is very effective when the market is slow and prices are not moving much. Short term trades with small profits can help to act as insurance and risk reduces for your longer term trades.
As already mentioned, the important factor of this type of trading is that you know when to stop trading. Getting greedy can result in one trade destroying the profit from ten or twenty trades. No matter what the market is doing, you must have a plan as to how much profit you will accept on each one; as soon as that is decided your trade should be placed to reach that; and nothing more.
If you are scalping you should never attempt to hold your position, no matter how good the market looks. Simply accept your small gain and move onto your next trade; keeping to the same approach. Careful market monitoring will ensure you know when to place a short term trade and when to avoid it; any item which is about to change direction is not going to increase your profits.
Using the Binary Options One Touch Hedging Strategy
The binary option hedging strategy can be an excellent way of reducing risk and increase the successfulness of your trades. Whilst the initial reaction is to use this type of strategy on standard high and low type trades, it can be exceptionally successful when applied to one touch trading techniques. In general a one touch trade will have a higher rate of return simply because it is a much higher risk strategy. Many traders will choose to avoid this type of trade, however, with the right approach and the binary options hedging strategy; you should be able to successful trade in the high risk areas and generate returns as high as four hundred percent!
You are probably already familiar with the principle of one touch trading. Put simply, you choose a price that you feel the asset will reach; if it does you gain the rate of return; if it does not you lose your investment. You can also specify a price that the asset will not reach. To understand when to trade and when not to, it is essential to use good analytical tools and study market movements as well as your specific asset. This is not a process which should be rushed, as emphasized by the fact that most of these types of trades have weeklong expiry dates. By undertaking a longer term trade you have more opportunity for the asset to reach your designated price.
Adding Hedging into the Equation
The basic principle behind binary options hedging strategy is to place two trades in opposing directions. Usually the second trade is placed after the first trade has already moved in the right direction but you are wary that it will remain in the right place by the end of your trade. The second trade assumes the asset price will move back; whichever direction the price moves in you will have one successful trade; the return from this trade will cover the cost of both trades and still leave you a small profit.
However, this approach is not viable when undertaking one touch trades. In this type of trade you should have completed your homework and be confident that the trade will move in one specific direction. Placing a trade which goes against this view suggests that you have not completed your research properly. Instead, this type of binary options hedging strategy involves placing two trades in the same direction. The best outcome is that both trades are successful, the most likely is that one is successful and covers the costs of both trades; the least desirable outcome is when neither of the trades finishes in the money.
It is easy to understand this principle by following an example:
You invest $100 in a one touch trade which is offering a four hundred percent rate of return. Once the trade is in progress and the price is moving in the right direction you place a second $100 trade with the same rate of return. If both trades finish successfully you will have an $800 profit! If only one trade completed successfully you will have $400; less the cost of the two trades still leaves a profit of $200. Of course, if both trades are unsuccessful you will lose $200.
The secret to successful employing the binary options hedging strategy is to avoid placing the second trade until the first trade is well underway; the second trade can use a lower one touch price which will increase the chance of it being successful and you receiving some of your initial funds back. There are only three possible results; two of these will give you successful trades whilst one will give you a loss; this means your risk has been reduced and your chance of success increased.