(+) Beginner Trading Strategies

🔄 Introduction to Binary Options

 

Binary or Digital Options are highly risky financial instruments and are classified as an exotic asset class. These options offer only two possible outcomes: win or lose (0/1). If your prediction is incorrect, you lose your initial investment.

General Trading Features

(i) Easy to use but extremely risky

(ii) Pre-determined risk and reward

(iii) Potential to profit from both bullish and bearish trends

(iv) Gains or losses may result from even small price fluctuations

(v) Available for trading 24/5 across various financial markets (Stocks, Forex, Commodities, Metals, Energy, Indices)

(vi) Trade across multiple time frames (from 1 minute to several months)

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💱 Basic Types of Binary Options

High/Low Binary Options

The most common type of binary option is the High/Low option. These offer fixed risk and return, and all that is required to profit is predicting the correct direction of a financial asset at the end of a specified time period.

■ Expiry Time: The conclusion of this specified time period is known as the Expiry Time, which can range from 1 minute to several months.

■ Strike Price: The Strike Price represents the level at which a trade either closes in profit or in loss.

Call / Put Binary Options

This is essentially the same as the High/Low type. If a trader expects a bullish market, they buy a Call Option; if they expect a bearish market, they buy a Put Option.

A simple way to remember:

1. Put Down – Bearish Market

2. Call Up – Bullish Market

In the case of a Call Option:

• If, at the Expiry Time, the asset price is below the Strike Price, the position results in a loss

• If, at the Expiry Time, the asset price is above the Strike Price, the position results in a profit

Payout Rate

• The Payout Rate indicates the potential profit if your prediction is correct. This profit is expressed as a percentage of your initial investment.
• Popular assets like EURUSD, Gold, and Crude Oil typically offer higher Payout Rates than less liquid assets like EURAUD, Sugar, or Corn.
• The Payout Rate is a key factor when selecting a Binary Options broker. Most brokers offer a maximum Payout Rate between 80% and 90%.

Refund Rate

• The Refund Rate is a percentage of your initial investment that is returned if the trade is lost. For example, if your prediction is incorrect, you may recover a portion of the lost amount.
• Not all Binary Options brokers offer Refund Rates. When available, they typically range between 5% and 15%.

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🛠 Combining Payout and Refund Rates to Evaluate Binary Options Brokers

To compare the profit potential offered by different Binary Options brokers, you can combine the Payout Rate and the Refund Rate, then use the total to evaluate and compare:

Example:

• A broker offering a 70% Payout Rate and a 10% Refund Rate presents a combined profit potential of 80%.

• Another broker offering a 90% Payout Rate and 0% Refund Rate provides a higher combined profit potential of 90%.

Other Popular Types of Binary Options

Range / Boundary Binary Options

Range (or Boundary) Binary Options allow traders to select a specific price range for an asset and place a trade based on whether the price will stay within or move outside that range at expiry.

• If the asset’s price remains within the selected range at expiry, the trade ends in profit.

• If the price moves outside the range at expiry, the trade results in a loss.

A Range Option involves two strike prices that define the boundaries of the selected range. This type of trading can be especially effective in ranging markets, where price moves within defined boundaries. Markets generally alternate between trending and ranging phases. In trending markets, prices follow strong upward or downward movements, while in ranging markets, they oscillate within set limits before reversing direction.

Touch / No Touch Binary Options

Touch / No Touch Binary Options allow traders to predict whether an asset’s price will reach (Touch) or not reach (No Touch) a specific level before expiry. These are similar to High/Low Options but are focused on the extent of the price movement rather than its direction.

Touch Options

• The trade closes profitably if the asset’s price touches the forecasted level before expiry.

No Touch Options

• The trade closes profitably if the asset’s price does not touch the specified level before expiry.

60-Second or Turbo Binary Options

60-Second Binary Options, also known as Turbo Options, involve predicting the direction of an asset’s price over the next minute. These instruments are highly speculative and carry significant risk due to market noise. They are not recommended for inexperienced or non-professional traders. If you wish to explore this type of trading, it is advised to begin with a demo account. Only move to a real account if you consistently achieve positive results in demo trading.

Binary Options Pairs

Binary Options Pairs allow traders to speculate on the relative performance of one asset against another within the same asset class. For instance, you can trade Apple vs. Facebook shares. If you believe Apple is undervalued and Facebook is overvalued, you can trade that expectation. A key benefit of this type of trading is that it isolates the trade from general market influences, meaning broader economic or market conditions have no impact on the trade outcome.

Binary Options Builder

The Option Builder feature enables traders to customize their own binary trades. This type of trading is based on the Call/Put model and is typically available through brokers using the SpotOption platform.

Option Builder Features:

(i) Select your trading asset

(ii) Choose your expiry time

(iii) Determine the direction (Call for up, Put for down)

(iv) Adjust the Payout/Refund combination

(v) Enter the amount to invest

The Option Builder gives traders a high level of flexibility in managing their risk and return expectations.

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DESIGNING & IMPLEMENTING A BINARY OPTIONS STRATEGY

 

♚ How to Choose a Binary Options Strategy

When searching for a binary options strategy, you must first understand that not all strategies work, nor are all suitable for your profile. Several factors determine how well a strategy fits you:

1. Time Frame (binary options time frames range from 1 minute to several months)

2. Risk Allowance (risk in binary options is fixed and predetermined; the time frame affects the overall risk exposure)

3. Asset Selection (if you specialize in a specific market or asset, choose a strategy suited to it). Selecting the right asset is often more important than the strategy itself.

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♛ Implementing a Binary Options Strategy

Choosing the right strategy can be challenging, but implementing it correctly is even more complex. Clear decisions and strong discipline are essential for successfully applying any strategy.

A trader must first identify an opportunity, then apply the right strategy at the right time. Knowledge, practice, and guidance heavily influence whether a strategy will be profitable. Use a Demo Account to practice your strategy thoroughly and track your performance carefully before trading with real money.

Binary Options Tactics

Finding Your Niche in the Market

To trade binary options profitably, you must identify your niche. It takes research and practice to master a particular niche, but once mastered, your winning potential increases by at least 50%. There is a wide variety of assets to trade—Forex currencies, indices, stocks, and commodities. The more familiar you are with an asset, the better your predictions will be.

Take Your Profits and Avoid Greed

When trading binary options, seek brokers offering an Early Closure or Take Profit feature. Avoid greed—set a realistic winning target based on your time frame, and once reached, take your profits and pause trading.

Stop-Loss Level as a Key Part of Any Strategy

Some traders treat stop-loss levels as strategies themselves, but stop-loss is actually a crucial parameter for executing any strategy. Day traders especially should always set a stop-loss level as a percentage of their portfolio. Everyone makes mistakes—accept losses, don’t try to prove you’re infallible, and wait for a better day to trade.

Avoid Using the Double-Up Feature

From 15 years of stock trading experience, I’ve learned never to play “Double or Nothing.” This approach is typical of losing traders. If you make a mistake, accept it and close the trade. Don’t double your position to recover losses. If your strategy is sound and you’re patient, there’s always time to profit. Trying to get rich quickly often leads to losing all your money in weeks.

The Role of Technology in Designing a Binary Options Strategy

One of the most important factors in binary options trading is choosing the right platform. This is especially critical for short-term traders vulnerable to technological delays. The platform should be web-based, user-friendly, and require no downloads. Also, select a broker whose platform offers the assets you trade. For example, stock traders may prefer StockPair, while EUR/USD traders might benefit from OptionFair, which offers up to 85% payouts.

Choose Expiry Times According to Your Strategy

Selecting the right expiry time is key in any market. Binary options offer a wide variety of expiries—from 60 seconds to months—allowing traders to match their strategy’s time frame perfectly.

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♞ Types of Binary Option Strategies

1. Event / News-Driven Strategies

   These strategies exploit volatility following economic or political announcements. They rely on fundamental analysis and usually require specialization in a particular market or asset. Because news effects are often priced in, the actual impact can be uncertain. Many traders avoid trading one hour before and after news releases. For beginners, trading on rumors rather than events might be better. A common rule is: “Buy the rumor, sell the news.”

2. Market Pull Binary Options Strategy

   Also called the Knock-On-Effect, this strategy is based on the idea that price movement in one asset affects another.

Examples:

(a) The US Dollar exchange rate influences commodity prices—when the USD rises, USD-based commodities like gold and silver tend to fall.

(b) Gold prices react to US inflation and Federal Reserve policies; easing leads investors to buy gold as inflation fears rise.

(c) Oil prices affect currencies of oil-producing countries like Canada and Norway; when oil falls, their currencies often decline, while oil-importing countries’ currencies like China or Japan lose value when oil prices rise.

(d) Commodities such as gold, silver, and copper impact currencies of producing countries like Australia and Russia.

3. Reversal Binary Options Strategy

   Used when an asset moves sharply but is unlikely to sustain that level, expecting a return toward its original price. This strategy requires strong technical analysis skills.

4. Straddle Binary Options Strategy

   A complex strategy that involves buying both a Call and a Put option on the same asset, betting on high volatility. Assets with volatile histories are ideal for straddles.

5. Boundary Binary Options Strategy

   This strategy focuses on predicting whether an asset’s price will stay within a defined range. Profits can be made whether the price moves up or down. Researching historical price behavior and technical analysis is critical for timing and expiry choice. This strategy works in both bull and bear markets.

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🎯 Final Words about Binary Options Trading

Binary options trading is not as easy as it seems. First, choose your broker carefully. Since binary options are relatively new, many brokers lack regulation. Prioritize brokers based in countries with strong financial regulations like the US or UK. Avoid brokers headquartered in offshore locations such as the British Virgin Islands. Overall, binary options are extremely risky, and most traders will lose their funds. Trade cautiously.

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■ Binary Options and Trading Strategy

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