Imagine there is a trend and you missed it. Many active investors and traders share this fear. A missed trend means missed opportunities, but also missed risks. A strategy for active trading is therefore imperative. This applies to all financial market products, including binary options.
Binary options are currently setting the trend in the trading industry. Many brokers have recognized this trend and are now increasingly offering trading. The advantage of these products is the simple and transparent mode of operation. It is only necessary to choose a specific direction, to set the term and to define the stake.
At first, even this may sound complicated to a layperson, because it requires that you know how the options work knows. Most brokers offer extensive teaching material for this. But there is no way around the fact to learn trading practically and this differs in the case of binary options by its simplicity compared to options trading on the stock exchange.
Trading strategies with binary options
Because the Binary options are traded within a term, the trader can freely decide whether to set the term of the binary option very short-term (intraday) or medium-term (weeks to months). Accordingly, the trader should be aware of certain strategies and trading approaches, which however hardly differ from the actual trading, be it with options or certificates or other products.
So it is about the probability of future price development with the help out of analysis tools. The dealer is offered an almost infinite variety of tools. From market analysis to fundamental events. The evaluation can take place in different ways. Every trader must find the most suitable strategy for them.
For example, the moving average (moving average) is a trend-identifying indicator or the RSI (Relative Strength Index), which compares the relative strength of price movements for a specific period of time. Technical indicators are particularly suitable for short-term terms, since the fundamental effect of events on the prices can usually only be guessed by advanced traders.
Example for trading a binary option
The Well-known broker IG offers a wide range of binary options for trading. Since options are derivatives, their values depend on the value of another, e.g. Shares or currency pairs can be selected from many products. Let's take the USD / CAD currency pair for our example.
On a technical basis, we used the three moving averages (moving averages in the chart) as indicators to identify the trend. It is immediately noticeable that the currency pair is in an upward trend since all three averages are below the price trend. The probability that the price will fall below all three averages is low.
We are therefore looking for a binary option that roughly fits our analysis and will find it. The binary option offered expires at 5 p.m. and gives us the opportunity to speculate that the price will not fall below the price of $ 1.0840 CAD / U $ after the term has expired (see red marking on the chart).
In practice, trading can now be carried out using the input mask (box below). We choose a position size of 0.3 lot, which means a value of 300 U $ and press Buy at an option price of 100 U $ and wait until 5:00 p.m.
Noob or pro?
Advantages of the strategy of moving averages
As we have seen, binary options trading can be implemented with simple means. This strategy is therefore very suitable for beginners. The analysis is done quickly because every broker comes with the indicators in his trading software. The risk of loss can thus be minimized and the chances of winning increased.
In most cases, suitable binary options can be found with the predefined price zones within the desired ranges. Since moving averages are mainly used by many traders as price supports and resistances, the probability that the price will not fall above or below these zones is very high, especially in the short term.
How can you fundamentally binary Trading options?
As already mentioned, trading binary options based on fundamental indicators is in most cases something for advanced traders. However, if there is secure information, it is also possible for beginners to take advantage of a chance to win. For example, if a rate hike is expected in one of the countries. In order to stick to the example with the USDCAD, if the FED should raise the interest rate at a certain point in time, the probability that the price will be higher after the expiry than when the binary option was bought is very high.
Economic indicators, which you should be familiar with, can be of particular advantage when trading binary options.
Binary options as an investment instrument
Of course, most strategies target binary options trading active trading. Also due to the limited term, different trading approaches are required than with a medium to long-term investment. A strategy development is therefore essential.
Imagine you are sitting in a casino and tossing a coin in the machine and hope you get three correct ones. Unlike binary options trading, gambling cannot develop strategies that increase the chances of winning. Even if most movements in the currency and stock markets are just as unpredictable as in a gaming machine, you can be successful in the long run with the right strategy and, above all, sensible money and risk management. Therefore, from now on we will be presenting various possible strategies for successful trading on Wednesdays and will be at your side on Mondays with helpful tips and advice.