Binary Options Strategies

As we have discussed on the ‘How to Trade Binary Options’ page – binary options trading is tailored to be straightforward; traders are presented with two choices and need to pick one. However, despite the relative simplicity of binary options trading, there are a range of strategies which traders can use in an attempt to improve their trading performance.

When trading binary options, there are a couple of things to bear in mind; the first thing to understand is that any person or site trying to sell you any form of software that guarantees a high rate of success for binary options should be treated with extreme caution. Like many things in life, if there was a near-guarantee of profit, everybody would be doing it. Another thing to consider is that markets are volatile. This may not come as a particular surprise, but the shorter the binary option time, the more volatile the market in question is likely to be. This means that even binary options strategies which might work reasonably well when it comes to long-term options are likely to react very differently when it comes to short-term trades.

Binary Options are not regulated by the Financial Conduct Authority

  • 01

    Following Trading Sentiment

    Many binary traders will try and calculate market movements based on the direction being taken by other traders.

    This technique can be useful, but traders should take the following into account; firstly, there’s no guarantee that general trader movement will reflect the actual movement of an option. Secondly, it’s rare to see traders solidly united for or against an option, making it hard to read a lot into sentiment direction.

  • 02

    Market Memory / Trading Trends

    There’s an economic theory that the markets run in trends, and that analysing past market performance can provide a measure of indication as to what the markets may do next.

    However, analysis of previous movement in order to predict future fluctuations only has a real chance of working – if it works at all - with long-term trades; financial markets are usually far too volatile in the short term for traders to use a trend strategy with any particular degree of accuracy. Also the theory actually runs as follows; trends exist until definitive signals prove that they have ended. That is basically saying that trends exist right up until the moment that they don’t; past performance is not necessarily indicative of future results.

  • 03

    Financial / Global Events

    By keeping a constant eye on global news, you may be able to profit from short-term trends caused by specific market events. However, note that the operative word is ‘may’ – if you read the markets incorrectly you may find that events cause the markets to go in the opposite direction to what you expected, leaving you with a loss instead of a profit. Let us take the following example; if the President of the European Central Bank makes a public statement about bolstering the financial situation of the Euro zone and the Euro starts rising, the chances are that it will continue to rise in the short term. However, there’s no guarantee of that happening – another event you didn’t notice might cause the Euro to fall instead.

    In conclusion, though there are several possible binary options strategies which can be utilised, none of them are fail-safe. However, it’s useful to be aware that they exist – as long as one is also aware of their limitations.

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