In order to understand how to start trading BO profitably, you need to understand the principles of options trading strategies.
Skillful use of BO strategies is the key to success of every trader seeking to get profit. To test a strategy effectiveness you will need self-discipline, knowledge of the basics of fundamental and technical analysis and of course, patience. Using these skills in BO proven strategies you will make good profits. At the same time, you should understand that not every strategy will be useful for all traders, since it is always necessary to take into account the experience, deposit size and market conditions. That is why, we strongly recommend you to choose the strategy and try out its efficiency on a demo account opened at reliable broker. After careful testing you are welcome to use your strategy in real trading.
Classification of BO Strategies
Option trading strategies, as well as trading strategies in the Forex market, can be classified into three types:
- Conservative: the profit is low with minimal risks.
- Balanced: the average income with the average risk.
- Aggressive: high profit is proportional to the high risk of loss.
However, the basis of successful trading is always risk differentiation and simultaneously use of several different strategies. Let’s talk about the most famous of them.
Strategy #1: Trade on News
The basis of this popular strategy is the analysis of how prices depend on the macroeconomic indicators, or Fundamental Analysis. Making the economic calendar – is trader’s main task. The more macroeconomic news released in the same time, the more dynamic will be the market. In order to learn how to control the situation and minimize risks, you need to open multiple divergent half-hour deals with the difference in the opening approx. 10 seconds for updates in 15-20 minutes prior to its announcement. After the news came out, and the market reacted to it, losing trades should be closed immediately. Trade on News is one of the most clear and popular BO trading strategies.
Strategy #2: Smart Martingale Method
Martingale method is more than one hundred years old. It was invented in order to try to beat the casino at roulette. The idea was to increase rates twice, in case of loss. The method proved to work, but ineffective due to the fact that his work often needed a very large deposit, while the risks were constantly doubled, and the gain was only the size of the original bet.
Within time and improved trading strategies, there was invented the so-called ‘smart’ Martingale method, that was very successful in BO trade. The essence of this strategy for options – is not to double the open position volume, but increase it at a certain ratio. This significantly reduces the load on the deposit and reduce potential risks.
Taking into account the profitability of the selected asset, the compensation ratio should be calculated in case of loss. For example, if the option profit is 85%, we need 2,2 ratio to compensate the loss-making deal. In this case, you should start with small volumes, as many brokers have a limit on the maximum volume to the opening position. And you just might not be enough of increasing steps. It is important to be able to stop here on time without getting into the series of long losing trades. That is why, you need to set a kind of stop-loss for yourself: your deposit percentage that limits the amount of losing trades on single position. For example, let it be 5% of your USD1000 or USD50 deposit amount. If the amount of losing trades at single position using the Smart Martingale Strategy approach to the amount of your stop-loss set at the level of USD50, you should begin a series again with the original transaction amount.
This tactic in conjunction with a Smart Martingale Strategy is sure to bring a positive result, if a trader will strictly adhere to its plan.
Strategy #3: Catching the Trend
Catching the Trend strategy identifies specific entry points. In order to master this one of the best binary strategies you need to understand the concept of a trend. Trend – is a curve of the asset price movement. The trend can be ascending and descending. Changing the ascending trend price is called the Peak, while changing the descending trend price – the Through. The lines connecting the peaks are called the resistance lines, and lines connecting the through – the support lines. A trend can look different in various timeframes, but the market state general picture is more noticeable on long time intervals. In order to determine a more precise entry position we can use some valuable indicators, such as MACD or Parabollic SAR, for position strengthening – Bollinger lines indicator will be perfect. In any case, the more trend catching technical indicators the trader will use, the more effective will be his BO strategy.
Strategy# 4: Trading on Signals
This BO trading strategy, perhaps, is the most simple and easy use for beginners. Its essence lies in the opening of transactions on the basis of free analytical forecasts of leading economic Internet resources such as Investing.com, or signals provided by the broker at his site where the trader trades. It is very simple to work with such signals. We just need to open those positions that are recommended to ‘STRONG SELL’ or ‘STRONG BUY’.
Strategy #5: Correction or Reversal
The main idea of this strategy is based on a forecast of trend return after sudden reversal. A trader suggests that suddenly fallen selected asset price will begin to rise again, and again begins to fall after his sudden rise. Although the asset price tends to oscillate, in general it is open to correction. This strategy is also called Trading Strategy Against the Trend or Reversal Strategy.
Strategy #6: Pinocchio
The Pinocchio Strategy can be related to the reversal group, as well as so-called graphic one. It is based on the method of determining the market ‘nose’ using three candles (Here comes the analogy with Pinocchio, whose nose grew when he lied.). The same is happening with the market. If the price chart of the selected asset grew a big nose, then the market is cheating and soon there will be a reverse. Pinocchio’s strategy is a model of three candles, usually arranged at the peak or trough of the trend. At the same time, the average candle body should be small with a long tail that goes beyond the other two candles.
Strategy #7: Binary Scalping or Turbo-Options
This kind of forex trading has successfully settled down at BO trading. Its main idea is making a profit on short-term transactions with intervals of 1 and 5 minutes. For successful implementation of scalping we need an assets with well defined and volatile trend. The rest is a matter of technique. More precisely, the matter of technical indicators: EMA with the period of 5, the EMA with a period of 10, Stohastic and RSI. Typically, these indicators you can download at the terminal broker, where you trade. After activation, all that a trader remains to do is to open short positions in the rise or fall (Call and Put options) depending on the date on chart indicators.
More information on binary scalping strategy you can find here: http://binarybrokers.ru/podrobnyie-nastroyki-skalping-strategii-dlya-byistroy-pribyili/
Strategy #8: Hedging
‘Hedging’ is the same as ‘insurance’. This BO trading strategy is very popular among experienced traders and beginners, and implies a discovery of two assets with different directions and the same expiration period. The purpose of this binary strategy is to catch rates in the corridor, thereby get the double profit at the same time on two deals. If the price breaks through the corridor, the loss will still be low.
Only ‘quiet’ trends can be effectively used in hedging, since critical gaps or spikes on charts virtually negate the possibility to catch a price in corridor. Hedging allows you to make secure opening of opposite position in case of an incorrect forecast, and although, it is not highly profitable strategy but is well used in combination with others.
Strategy #9: Early Closure
This strategy allows withdraw the option before its expiration. The profit get from the period depends on the deal opening and its early closure. The earlier the time of the option closure is, the less is the profit on it. However, we should not forget the rule that the option can be canceled no later than 10-20 minutes before the end of its term (it depends on the broker and terms of the contract).
In addition, not all BO brokers offer the same opportunities to its clients, so if the application of such a strategy is important for you, you should pay attention when choosing a broker.
Binary Strategy: Summary
Counting all the BO trading strategy is senseless because they are too many. But nevertheless, the main rule of effective trading has always been and remains a reasonable choice of optimal combination of different strategies that eventually could be transformed in a personal one. It is no secret that the best strategy – is a personal experience of trial and error multiplied by the knowledge and self-discipline.