Binary Options Strategies


As mentioned on the ‘How to Trade Binary Options’ webpage, binary options are a simple trading format where traders are given two choices and merely have to decide which one to pick. Yet despite the straightforward nature of this form of trading, there are several strategies that can be employed to help to try and improve your trading execution, though they are not without their flaws.

 

Before we discuss these, though, a word of warning; don’t be taken in by the various forms of binary options trading software on the market which claim to guarantee a impossibly high success rate. If such guarantees were realistic then every trader would be doing the same thing. Another point to consider is the volatility of the markets. The shorter the timescale for a binary option, the more volatile the market tends to be, the result being that strategies which prove successful over the long-term can often react differently during shorter-term trading periods


Binary Options are not regulated by the Financial Conduct Authority
  • 01

    Following Trading Sentiment

    One way to try to predict market movements is to consider the direction taken by other investors. The ETX Binary platform gives traders a ‘trader sentiment’ tool, which displays the percentage of traders which are siding with either side of the option.

    It’s certainly a helpful factor to consider, but traders should not take this information as a guarantee of how the market will move. Apart from anything else, it’s rare to see a consensus amongst traders for a certain option. More commonly, traders tend to be split fairly evenly, making it difficult to read much into the sentiment of the market.

  • 02

    Trading Trends

    Some economists believe that the markets run in trends, which means that by analysing market data from the past, a prediction can be made of the future direction of markets.

    If this strategy has any chance of being successful, however, it’s with longer-term trades. In the shorter-term markets tend to be subject to too much volatility for any trend strategy to be accurate. The other problem with this method is that the theory suggests that trends exist until definitive proof that they have come to an end. So therefore the theory states that the trends exist until the point at which they don’t, making past performances an unreliable indicator of the future.

  • 03

    Financial/ Global Events

    If you keep abreast of what’s going on in the world, your chances of being able to respond quickly to events that provoke short-term trends in a market is likely to be greater. Such global events are open to interpretation, of course, so it’s up to you to read the market correctly and it’s far from impossible for the market to move in a different direction than you expected.

    For example, if the Governor of the Bank of England makes a positive statement about the strength of Sterling and the UK currency begins to rise, the possibility is strong that the Pound will continue to go up in the near-term. However, that’s certainly no indication that GBP will rise ad-infinitum. A fresh event could result in the Euro beginning to fall instead.

    To conclude, it’s fair to say that while several strategies for trading binary options are available, none will guarantee success. Be aware that they exist and use them when making your trading decisions, but consider their limitations.

  • 04

    Don't let your emotions trade for you

    When the markets don't move in the way we expect, it's easy to let bad results affect rational thought processes. Trading when you've just suffered a significant hit can be dangerous, as you might be tempted to take much larger risks in order to try and regain lost funds.

    If you keep abreast of what’s going on in the world, your chances of being able to respond quickly to events that provoke short-term trends in a market is likely to be greater. Such global events are open to interpretation, of course, so it’s up to you to read the market correctly and it’s far from impossible for the market to move in a different direction than you expected. For example, if the Governor of the Bank of England makes a positive statement about the strength of Sterling and the UK currency begins to rise, the possibility is strong that the Pound will continue to go up in the near-term. However, that’s certainly no indication that GBP will rise ad-infinitum. A fresh event could result in the Euro beginning to fall instead. To conclude, it’s fair to say that while several strategies for trading binary options are available, none will guarantee success. Be aware that they exist and use them when making your trading decisions, but consider their limitations.

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