Binary options trading Strategy

Binary Option strategy

Trading strategies are a key element of long term successful binary options trading. A successful binary options strategy can be defined as a strategy which consistently makes a profit.

When trading binary options, this generally requires a method that wins more trades that it loses, and crucially, at a payout that more than covers the losses. Binary trades generally payout at less than 100% on the investment amount – so simply winning more trades than are lost may not necessarily be enough to turn a long term profit.

The art of trading binaries profitably shares some similarities with the sports betting world. The important trait that links both enterprises is that of expectancy. Long term profit trading binaries can only be derived where the expectancy (the theoretical profit within any trade) results in a positive expectation from that trade.

Binary options trading strategies are therefore used to identify repeatable trends and circumstances, where a trade can be made with a positive (profitable) expectancy. It may be as simple as;

  • If asset ‘X’ falls in value for three sessions in a row, open a call option for the duration of the next session.

The above is an extremely simple example of a trading ‘strategy’. Strategies do not need to be hugely complex (though they can be), sometimes the simplest strategies work best.

Types of trading strategy

There are a range of techniques that can be used to identify a binary options strategy. New investors may like to explore all of them – each has the ability to be profitable when used correctly.

In addition to the type of basic, or traditional, trading strategy highlighted above, there are also alternative methods;

  • Charting and technical analysis charting (the analysis of graphs and other technical indicators) is often considered first when discussing strategy. Much has been written about the trends and patterns that are regularly seen within the pricing charts, and many of these can translate directly into trading strategies. Retaining a simple strategy whilst trying to drill into technical analysis is not always easy, but does provide a route to some insight that may not be immediately obvious elsewhere.
  • Fundamentals – Analysis of the fundamentals is almost a prerequisite for most types of investment or trading. With binary options trading however, the time scales are often too short for the fundamentals to shift the price in the expected direction. There are still some binary options trades that can be gleaned from study of the fundamentals though, and it is another potential route for a successful strategy. Particularly longer term options. Some brokers now offer expiry times of one and two months ahead making this form of strategy much more realistic.

The benefits of a good binary options strategy

A good binary trading strategy will simplify much of the decision making about where and when to trade. With timing the key to everything where trading is concerned, the less guess work there is around entry and exit points, the better. Particularly for less experienced traders.

A repeatable strategy will always highlight the trading opportunities, where otherwise, the majority of those openings would be missed. Strategies encourage discipline, aid money management and provide the clearest predictor for positive expectation. While it is possible for traders to profit from binary options without a strategy, it will be exponentially harder.

Novice traders will also benefit simply from trying to build their own binary options trading strategy. Once some time has been spent analysing different methods and building a strategy from scratch, it is much easier to appraise strategies offered by others. Without that initial grounding in the art of trading strategies, it would be very easy to become intoxicated by the promise of untold riches using someone else’s trading strategy or expensive software.

Demo accounts can be a good place to start experimenting with binary options trading strategies without risking any capital. Read our full list of demo account brokers here.