Forming Your Own Personal Approach to Trading with Binary Options

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How to develop your own binary options trading scheme?

Binary options, despite the financial prospects for potential investors, require in the process of profit making the solution of many technical and analytical problems. To effectively use binary contracts, traders use strategies that, thanks to specialized approaches, methods and tools, are able to give certain statistical advantages to the market, and also provide an opportunity to more clearly generate effective trade forecasts for the formation of market positions.

Today the network is full of various systems and strategies that can certainly satisfy certain requirements of investors in the process of trading options. However, if we talk about professional trade and the achievement of financial heights, it should be said that the bulk of well-known investors and financial market professionals have achieved success due to their own high-quality trading systems. Schemes of work on the market, which the trader has developed independently, are the most universal and profitable tool.

Of course for most private non-professional online traders with minimal experience in trading and only basic knowledge in financial trading it is rather difficult to independently develop an effective and working strategy, but it is possible! Against this background, we offer a useful guide to developing a trading strategy for binary trading, which will help you understand the technical subtleties of the process of forming trading schemes.

So, before embarking on the formation of a strategy, it is necessary to clearly understand the principle of the main trading instrument – binary options. What task should we solve for profit? Everything is extremely simple – the main condition for the profitability of the contract is to determine the direction of the market fluctuations or the forecast about the value of the price at a certain point in time. Hence the logical conclusion is that to determine the necessary indicators we need a system that will effectively determine the most profitable market positions for betting an option. In this case, the most attractive moments are the levels of origin of new trend movements or a stable market trend. Simply put, the most optimal conditions for binary trading is the work on the trend of quotations. In this way, you can achieve the most effective statistics.
To determine the trends and points of their origin, as, indeed, for the calculation of other indicators, there are two directions of analysis in trade:

Fundamental, where as the indicators for forecasting the market are the fundamental statistics, political and economic news, as well as the activities of financial regulators and government bodies. On the basis of such drivers of influence on the market, the trader’s behavior pattern is built when working on the trading platform
Technical – here traders evaluate current market indicators using a wide range of specialized techniques and tools: from patterns and cyclic regularities to the generation of signals using indicators of automatic analysis

A professional trader must master all areas of analysis in order to create an effective trading system. In addition, in the preparatory stage of strategy development, the investor needs to first understand what type of system suits him the most. Here you need to take into account a lot of indicators – a comfortable rate of trade, the choice of working assets, the preferred mode of forecasting and a list of tools that the trader understands.

Most professionals seek to develop the most efficient and simple systems, which include Price Action strategies or indicator approaches to generating forecasts. These types of trading schemes are characterized by simpler algorithms for estimating market indicators, efficiency, high level of performance and correct evaluation of short-term trading periods. Having determined the type of trading strategy that suits you for all indicators, proceed to the direct development. To do this, you need to take the following steps:

• Outline the list of trading assets

Trading quotes of various financial instruments are subject to a diverse spectrum of patterns and drivers of influence. If you open asset schedules, then you will not find two of the same. Therefore, for effective trade, you need to create a set of the most attractive trading resources. The fact is that some assets work perfectly on strategies of fundamental analysis, for example, “Trading on the news” – this includes commodity assets, gold, stock market instruments (stocks), others show excellent results using graphical or indicator strategies – mostly currency pairs. Therefore, the choice of assets for trading is an important factor in building a trading system.

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  • Binomo
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• Determine the optimal trading time

Effective time management is also the foundation for the formation of a profitable approach to trade. Firstly, here there are several time periods for trading – night, which is characterized by low volatility of the market, minimal dynamics of trading, limited list of assets. Day, which is characterized by the activity of the movement of quotations, strong impulse movements of the trend, the maximum dynamics of trade operations. In addition, there are several additional time periods for trading – weekend trading, which uses specialized assets for trading or artificial trading quotes generated by the algorithm of the brokerage platform, as well as the time of the release of the fundamental data. Having determined the optimal time period of work in the market, the investor can improve the level of performance of his trading. Let’s continue, the next step is the direct development of the system.

• How to build a strategy

So, you have decided on the assets for trading, set the trading time for yourself, now you need to create a system template. For this, it is necessary to analyze the quotation chart well and identify the most accurate and cyclical patterns. To informatively show the principle of system development, we take two simple and most popular types of strategies – indicator and Price Action.

Indicator systems – to create a template for market analysis using indicators, select from your list of understandable analysis services tools with different modes and algorithms. Ideally, if you use a set of oscillators, trend indicators and auxiliary services, for example, volume determination tools. Expansion of the estimated market indicators will allow you to build a system with high efficiency and versatility. Next, analyze the performance of indicators on the history of quotations. This is necessary to determine the system of signals that can form an instrumental set of strategies. Having identified the necessary indicator signal indicators that can be used in practical trading, fine-tune the analysis services. This is necessary for a correct estimation of quotations of a particular asset. It is through the combination of indicators and experiments with their technical settings that professional indicator-type strategies are born.

Strategies for Price Action – this format of systems is more complicated in development. To form a system of this type, you need to have a relatively large trading experience and attention. The bulk of Price Action systems are strategies based on cyclical patterns and the identification of certain market indicators that can be used as signals for trading. A simple example is working on trend levels. The developers of this system simply noticed the regularity of the market, in which the price, reaching certain indicators, carried out a trend reversal. So the trading strategy was born. Another example is candle models. The chart in the mode of Japanese candles generates a wide variety of shapes, combinations and figures of quotations of quotations that are able to inform the trader about changes in the movements of the market. Having identified this model, you can draw up a lucrative rate. Thus, the development of the Price Action strategy is to monitor the market for the identification of certain cyclical patterns. It should be noted that such indicators are considered by professionals to be the most effective signals for trading.

Calculation of expiration for trading by strategy

The second most important indicator of binary trading is the option redemption time. It is completely unimportant whether you predicted a market movement if at the time of the expiration of the option the price is not in the place where it was supposed to be according to the trade forecast, as the market can oscillate in different directions in a rather limited time range, and considering that the bulk traders trades contracts with expiration from 1 minute to an hour, then without correct calculation of this indicator, trading can be ineffective.

To correctly determine the optimal repayment range for bets, you first need to study the history of the market. Here you can simply calculate the candles of the chart with a certain period of construction (timeframe) to determine the most effective time range, which will effectively work out the signal of the strategy instruments.

Next, when calculating expiration, you should take into account the current volatility of the financial instrument market. For pulsed motion, it is preferable to use contracts with a minimum repayment range. At low quotes activity it is recommended to work with options with a longer range of repayment. A clear calculation of the time indicator of the action for each contract allows you to maximize the profitability and efficiency of trading.

• Managing

We determined the range of technical indicators that are necessary to create our own trading method for binary trading, it’s time for financial requirements for the work of the strategy. You should clearly understand that there are no systems with 100% efficiency. Each strategy gives a certain indicator of unprofitable contracts! Therefore, you must clearly understand what level of losses your strategy gives to properly manage your capital. Ignoring the calculation of risk management indicators can lead to a loss of capital even on the most efficient system. In this respect, you can use the classic limitations on the cost of options – it is usually recommended to use contracts that do not exceed 5% of the amount of capital. An alternative here is a test strategy on specialized services or demo platforms – in this mode, you must use the trade statistics to determine the number of unprofitable rates and calculate the level of the maximum allowable risks in trading.

• Testing the system

Undoubtedly, already during the development of the strategy you will test certain moments of its work. However, after the final configuration, the formation of the system template and the calculation of all the necessary indicators, it is extremely important to conduct a final test of the strategy’s work. Thus, you can finally make sure the system is working, evaluate its trading effectiveness in different trading conditions, and gain experience in its practical use. Believe me, this will definitely pay off in the form of profits!

Summary

Having passed all the stages of professional strategy development, you can create an individual and highly profitable trading method that will be optimal for your trading style. The optimality of all indicators of one’s own strategy is one of the main factors in achieving success by any trader in the binary market!

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Successful trading involves many components. This includes the choice of broker, trading strategies, and the skills of the trader. Another equally important factor is the assets used. Brokerage companies offer a large selection of derivatives of various types, including major currency pairs, as well as corporate stocks, stock indices, etc.

Each asset has its own features concerning exchange rate formation, which in turn affect trading strategies. Therefore, experienced traders pay special attention to this, and they only trade on certain currency pairs at set times. This article will be devoted to a brief overview of popular assets. Also, recommendations on suitable choices will be given based on trading tactics, personal preferences, volatility, and other nuances.

As far as the technical implementation of binary options is concerned, in theory traders could use the rates of absolutely any assets. However, in this article we will not delve into the operating principles of options trading as that issue has already been discussed on our website. The standard asset set is limited to the following types:

  • currency pairs;
  • stock indices, currency and commodity exchanges;
  • shares of companies, for example, Apple or Microsoft;
  • commodities, including oil and gas;
  • precious metals, gold and silver, platinum;
  • cryptocurrencies;

Some brokers do allow what was mentioned in the beginning of the paragraph. They let you trade with such exotic goods as, for example, wheat or coffee. However, that is an exception to the rule, and the types listed above are standard and available from almost all brokers. At the same time, the range of available trading instruments in certain categories varies greatly and depends on the particular company. Let’s look at each type of asset listed in more detail.

Currency pairs

They are, without exaggeration, the most popular type of financial instrument used in trading. This special type of asset in the form of a currency pair is used on the internet on exchanges and futures markets. From the name it can be understood that we are talking about two assets that form a pair. That is true, and trades are conducted in two currencies where one of them is set against the other. For example, in the most popular pair of EUR/USD, the indicator is how many dollars one euro can purchase. This value is called the rate or quote.

Trading platforms offer their users a huge selection of currency pairs. Again, binary options play a role here specifically, because all user trades actually remain inside the system. However, the rates are real, and brokers receive them from official sources which in turn have a direct link to the world’s largest exchanges and national state-owned banks. In fact, you can create pairs of any currencies, but for options there are usually only those combinations that are traded on the classic exchanges.

Currency pairs offer a number of advantages, in particular, high volatility (exchange rate fluctuations during the day), an extensive range, interdependence and correlation, as well as versatility and the ability to use a variety of trading systems with them. As a result, absolutely all binary options brokers offer this type of asset. It is precisely these pairs that make up the necessary base that satisfies the vast majority of users. It is also worth mentioning that a considerable percentage of BO traders started trading on Forex. And that is an international exchange where trades are predominantly for currencies, although there are also other assets, but there are significantly less of them for options.

To make it clearer, let’s compare the volatility indicators of two popular currency pairs. Let’s start with the most popular among traders – EUR/USD. In a typical trading day, the intensity of price fluctuations is about 40-80 points. The euro usually shows a strong reaction against the backdrop of key news releases. Below is a screenshot of the Meta Trader terminal from the EUR/USD charts on the 30-minute timeframe.

There are also more volatile pairs. For example, GBP/JPY (the British pound paired with the Japanese yen). Often during the day, the intensity of the oscillations exceeds 100, and often 200 points as well. An example of the chart is given above. Sharp price jumps are clearly visible, and a similar situation is seen on the hourly chart.

Trading currency pairs on binary options

In fact, there is no fundamental difference in the approach to currency trading (when compared to all other assets). However, they are the most popular. The reason here lies in the convenience of using them. First, they are very well suited to both technical and fundamental methods of market analysis. Secondly, a high level of volatility significantly expands the horizon of opportunities from the point of view of traders.

Intense price fluctuations allow you to open a large number of trades in a short period of time. Namely, turbo options with expirations of less than 5 minutes are the most popular among BO traders. Constant rollbacks and uneven price movement on the chart provide lots of opportunities for the various strategies and techniques used by experienced traders. They include risk insurance, position hedging, etc. Such an approach makes it possible to, first of all, minimize financial losses in situations where it becomes obvious that the forecast was incorrect, and secondly, apply the most effective trading strategies with high percentages of profitable trades. Such systems are usually based on the simultaneous opening of two cross positions with the subsequent closure of one of them, which allows you to get part of the funds back, and the remaining losses will be covered by the profit from the opposite position.

The strategy of trading on the news is very popular among traders. And it doesn’t involve delving into the subtleties of fundamental analysis. The large portal Investing has developed a unique tool that collects information about key news events and displays it in a form that is concise, yet most informative in terms of trading. It is called the Economic Calendar. The advantage of this service is that, in addition to information about upcoming events, it provides forecasts on market reaction to news releases, as well as historical data.

In addition, currency charts are characterized as well “behaved” in relation to the subsequent signals received as a result of applying methods of technical market analysis. For this purpose, traders use various indicators, scripts, as well as chart and visual analysis. Both methods are good in their own way. However, when trading on technical analysis signals, you shouldn’t forget about the Economic Calendar and make sure to periodically have a look there. Generally, when news is released the price usually behaves in an entirely unpredictable manner (concerning technical analysis techniques). However, a fundamental approach will you allow to predict such a situation in no time. Therefore, experienced traders always combine the two approaches to market analysis to get the best possible result.

Commodities

This type of asset originates from the very first commodity exchanges where real products were traded. They included grain, fuel and other goods. Precious metals are usually also included in this list, but we put them into a separate category at the beginning of this article. Most binary options brokers offer their clients oil, gold, and silver to trade. These tools are the most popular. There are a number of strategies that were developed specifically for precious metals – for gold and silver. But there are companies with a very wide range of assets in this category – natural gas, coal, wheat, sugar, and much more.

Commodity trading has its own characteristics. Commodities are usually chosen by those who apply fundamental methods of market analysis. From the point of view of technical analysis, the price chart is only partially suitable, then quite often periods of downtime are observed with subsequent sharp jumps. This is especially noticeable on small time intervals. Therefore, turbo options are practically never used for this.

However, in terms of analysis at a fundamental level, there are many opportunities. For example, the situation in the oil-extracting sector directly correlates to its price. If, for example, the shares of the world’s largest companies show a downward trend, then we should expect similar behavior from the Brent oil price. Similar studies can be conducted in other areas in addition to energy.

To ensure that trading raw materials is effective, it is necessary to make forecasts that take into account many factors. This is only possible for experienced traders who are capable of conducting detailed analysis of certain areas and niches of the market. Many nuances are taken into account. For example, if we are talking about food, then there is clearly pronounced seasonality. And this, in turn, allows you to open long positions using hedging and risk insurance. From all of this we can conclude that raw materials are not the right assets for beginners. However, a professional approach will make it possible to obtain forecasts of high accuracy. Fundamental analysis of commodity assets is easier than it is for currencies, because they are affected by relatively fewer factors.

Shares of companies and stock indices

Shares do not need any further introduction. This type of asset also enjoys moderate, stable popularity. As in the previous case, they are chosen by traders who analyze information about specific companies. A professional approach will allow you to catch hidden trends that soon lead to either increases or decreases in capitalization volumes.

As for classic investing in stocks, profits are earned only if their price increases. And when trading on binary options you can earn a profit in any situation. The main thing is that the direction of the forthcoming movement should be predicted in advance. Anticipating the behavior of the exchange rate is simple enough in some situations. For example, Apple shares almost always show a growth trend just before new products are presented. However, this does not guarantee a profit, because capitalization may begin to decline immediately afterwards if investors consider the products to be not as promising as expected. This example is used to understand the general principles of market analysis when trading assets of this type.

Exchange indices are a special type of asset which, in comparison to the types discussed above, are the least popular among traders. They represent the average value of a set of indicators in a certain sphere. For example, the Dow Jones Industrial Average forms its exchange rate by adding up the total capitalization of a few dozen of the largest companies in the US in the manufacturing sector. To effectively trade on indices, the trader needs to have a good understanding of the economy of that country, and they also have to delve into the subtleties of that particular production niche. This is definitely not suitable for beginners.

Cryptocurrencies

Recent years have seen a rapid increase in the popularity of cryptocurrencies. And binary options brokers are not sitting out on the sidelines, they, too, support this global trend. In 2020, leading companies added a number of trading assets with popular cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and others. Also, some brokers added functionality to deposit and withdraw funds via cryptowallets.

There is a lot of potential for this type of asset. Its distinctive feature is extremely high volatility. Such strong variability of the exchange rate over short time intervals is a novelty in the history of exchange trading. For example, at the end of 2020, there were days when the rate of Bitcoin changed within one day up to $5,000. That is hundreds and thousands of points on the chart. Such a situation would be impossible in principle for any other type of asset.

Cryptocurrency trading strategies

Unlike all the types of assets discussed above, cryptocurrencies do not have a unique link to the economic situation in a particular country. Of course, this has an effect, but there is no direct correlation. Therefore, the main factor affecting exchange rates is the demand for a particular currency among real investors. Also, good results are shown by the so-called logical pricing forecasting systems.

However, classic methods of market analysis work only partially for cryptocurrencies. As for minimal intervals (second intervals), the chart does not work at all in terms of finished candles forming in the correct shape. Therefore, the feasibility of using turbo options is in question, and the same applies to trading on small intervals in general. However, starting from medium intervals, the standard methods of technical analysis can be applied, which also show good efficiency. However, in general, the behavior of cryptocurrencies is difficult to predict using conventional oscillators and trend indicators

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

A Guide to Trading Binary Options in the U.S.

Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?

Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.

Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.

Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.

U.S. Binary Options Explained

Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.

Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?

If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.

The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.

Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.

A Zero-Sum Game

Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

  • NASDAQ US Tech 100 index > $3,784 (11 a.m.).

The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Good Choice for Beginners!
    Free Trading Education, Free Demo Account!
    Get a Sign-Up Bonus Now!

  • Binomo
    Binomo

    2nd in our ranking!

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