10 best Binary Options Strategies for beginners and professionals.
Trading Binary Options is now one of the most popular ways of having skin in the game. The appeal of binary options is not hard to recognize – at first blush, the transparent options look like a great way to make money fast.
But like any other way of making money, trading Binary Options is not that simple. You must take the time to learn or formulate and implement a solid trading strategy.
Any options trader worth their salt knows a couple of good trading strategies that can make them profits and get them out of sticky trading situations.
If you haven’t learned any strategies yet, don’t sign up for a broker and head into the market just yet. Slow down and invest some time into learning. There’s plenty of time for you to make money with binary options.
There is no shortage of nifty Binary Options strategies, either, and we’ve highlighted some of the best strategies for you in our guide below.
See an example here:
Why should you use a trading strategy?
Regardless of what kind of derivative you’re trading and what market you’re trading it in, approaching a trade without having a plan of action is rash at best and dangerous at worst.
It is akin to giving someone your money without knowing what they’ll do with it. You must have an entry and exit plan and a set monetary goal – without these, you’re essentially relying on fate to make you money.
It is a traders’ job to use the tools available to them and make informed decisions. Good traders never treat a trade as a gamble.
Furthermore, using trading strategies ensures that you don’t make an emotional decision. Greed and fear are feelings that arise when you’re putting hard-earned money on the line, and with a strategy in place, you will never bet more than you can afford to lose.
If you’re trading Binary Options, it becomes even more important to use strategies. While the instrument is easy to trade with, you can still lose a lot of money if you make poor decisions or bet on the wrong options.
Find better decisions for your trades No emotional acting Using a trading plan No gambling Know when the market is moving Profitable in long-term trading.
The basics of Binary Options strategies:
There are two parameters you need to know about: The signal and the trade amount.
The signal.
A signal is simply an indication of whether the underlying asset’s price will go up or down. Every strategy involves either creating or recognizing a signal, which you must use to decide whether you should buy or sell an option.
You can make a signal in two ways: by technical analyses or by following the news.
Approach 1: Following the news.
If you don’t have a lot of experience, you can follow the news and use news events as signals. Pay attention to all of the publicly available information – industry announcements and CEO decisions often accurately indicate whether an asset’s price will rise or fall.
Approach 2: Technical analysis.
Trading stocks and trading options are two very different things, but the two also have some similarities. You can use technical analysis for trading both stocks and options.
To put it briefly, technical analysis involves examining all the information relative to the asset without considering the broader market’s movements.
Technical analysis is discernibly more complicated than looking at news events – you will need to look at how an asset’s price has moved in the past to predict how it will move in the future.
Example for a technical analysis signal:
Conducting technical analysis may seem extremely difficult to new traders, but you must realize that your brain looks for patterns in things every day. All you have to do is learn to use charting tools and understand a few concepts before getting accustomed to forming signals based on the information you collect.
All told, you must recognize what you’re more comfortable with to increase your chances of making profits. As a beginner learning technical analysis, you could benefit a whole lot by practicing strategies using dummy money with a demo account.
Many brokers offer demo accounts for free. Getting some practice and gaining some experience before investing real money into the market is the right way to go. Until then, use news sources to make money with binary options (more on that below).
The trade amount.
You must have an underlying money management strategy to determine how much you will trade regardless of your approach.
The two most common money management approaches traders use are the Martingale and the percentage-based approach.
Approach 1: Percentage-based.
Using the percentage-based approach to money management is your best course of action when you’re starting out. The method is a lot less risky since it determines how much you should invest in a trade based on how much you have in your account.
In this strategy, you must first reflect and come up with a percentage of your capital you’re willing to risk. Most traders bet 1% or 2%; however, more experienced traders may also choose to risk 5% of their capital.
Once you decide how much you want to risk (we recommend 1%), you can go ahead and trade 1% of your capital on every trade. L et’s say you have $10,000 in your account. You can make a $100 trade if you’re applying this strategy.
If you lose money, the next time you make a trade, you will have less to invest since you will have less money in your account.
But this also means that you will have money in your account at all times, and you could bet more after each successful trade. The percentage-based approach helps ensure that you make profits consistently.
Approach 2: Martingale.
The Martingale approach will have you double the amount you’re trading after a loss, so you can recover from the loss and then some.
However, this approach could lead you to lose all of your money if you don’t have much experience and go on a losing streak.
How to tell if a Binary Options strategy is good:
A great binary options strategy will generate a signal that makes you money consistently.
Learning strategies, personalizing them, and testing them out is the only way to find a good strategy. Any trader worth their salt will tell you that the strategy you use will pave the way to your eventual success (or failure).
You must remember that some strategies yield outstanding results in the short term, and others make you great money in the long term. Recognizing which strategy is suitable for what circumstance is a part of being a good trader.
Every time you develop a new strategy or make changes to one you use, test it out.
Never risk real capital to test a strategy you don’t know works. Also, make sure you have a money management strategy to complement your signal.
Recommended brokers for using Binary Options strategies:
If you want to start trading Binary Options successfully, you will need a reliable broker. In the next section, we show your 10 different strategies. We recommend using the practice account first before you invest real money. The following 3 brokers a tested and checked by us:
The 10 best Binary Options strategies.
In the following, we show you the 10 best trading strategies for Binary Options:
1. Strategy – Going along with trends.
Regardless of what market you’re in or what asset you’re trading, one of the best ways to make money is to go along with a trend. It’s arguably the best strategy a beginner can apply.
Asset prices typically move in accordance with trends. The price will rise or fall along with associated assets since the market is constantly speculating and in real-time.
You must remember that a trend rarely has a straight line up or down. You will typically see an asset’s price move in a zig-zag pattern in a general direction – up or down. Recognizing the pattern allows you to estimate whether an option’s price will be higher or lower at expiry.
There are two ways of trading with trends: you can either trade with overall trends or trade with swings.
See the example of a trend:
The safer way to go about trading with trends is to focus on the trend’s overall direction. Most traders make a profit by looking at the general direction and setting an end-of-day or end-of-week expiry. This strategy doesn’t work well with short-term trades.
Alternatively, you can trade with every swing in the trend. As mentioned earlier, trends typically move in a zig-zag fashion. Betting during the up or downswing can make you more money in a short period, but it is also significantly riskier.
How to apply.
You must examine the chart and look at the trend lines. If the line is flat, find another option to trade. However, if you see that the line is going up, the price will likely go higher. The same is true if you see that the line is going down.
Once you find the right asset and trend, you can use a Binary Options and make money if your speculations are correct.
2. Strategy – Following news events.
While following the news is one of the most basic strategies, it can make you good profits. It is easier than performing technical analysis, but it requires you to read the news and stay in the loop all day, every day.
Online news is only the start. You must pick up newspapers, tune into news stations, and leverage as many other sources of information as you can. The idea here is to understand the asset as deeply as possible before evaluating whether its price will rise or fall. We recommend using the “economic calendar” where are daily news and events published.
You also need to reflect upon human behavior. A piece of news you find positive may not be seen as great news by the rest of the market.
One of the drawbacks of using the news to make trading decisions is that you cannot tell how far up or down the price will go and how long the price movement will last because of a particular event.
That being said, there are some things you can do to increase your chances of making a profit:
Leverage the breakout: A breakout is a short window between the news release and its impact on the market. It can last for a few seconds or go on for a few minutes. In this strategy, you want to bet big since there are significant price movements after a breakout. Using high/low options is the right way to go. Employ boundary options: If you’re sure that an asset’s price will move but don’t know in which direction, estimate how far up or down the price could go, and use a boundary option. This way, regardless of if the news is positive or negative, you will make a profit.
How to apply.
One of the best ways of using the news to make a profit is to follow tech companies and find out when they’re making their next announcement.
If you find out they will be unveiling a new product, you can buy options and wait for your profits to roll in when everyone loves the new product.
3. Strategy – The Straddle Strategy.
This strategy must be used in conjunction with the news strategy. Straddle trades must be made right before an important announcement.
The asset’s value may increase for a short period after an announcement, but you must buy an option estimating that the price will come back down again.
When the price starts to drop, you can call another option expecting the price to rise again.
The strategy leverages the swings of a trend. You will make some money regardless of if the price goes up or down. The straddle strategy is known among traders as one of the most consistent ways to make profits – even in a volatile market.
But bear in mind, pulling it off requires good analytical skills and experience in the market.
How to apply.
Let’s assume there has been a gold mine explosion that will significantly impact the market. The price of gold will fluctuate frantically since investors don’t understand whether the price will go up or down.
In this scenario, the affected companies will scramble to find a solution to continue production.
Using the straddle strategy and leveraging the waxing and waning of the market in scenarios like these is an excellent way to make profits using binary options. You will benefit from the market regardless of what happens in the long run.
4. Strategy – The Pinocchio Strategy.
The Pinocchio strategy is similar to the straddle strategy – it calls for deliberately betting against the current trend.
In a nutshell, if an asset is experiencing an upward trend, you must place an option expecting the price to fall. By the same token, you must use an option expecting an asset’s price to rise if the asset is experiencing a downward trend.
While beginners with no knowledge can apply the strategy, a deep understanding of the asset is essential to making this strategy work. Only if you understand how the asset works will you make accurate predictions and make profits.
How to apply.
You must first look at the candlestick chart of the asset you’re looking to trade. When the candle is white or dark, it indicates that the market is bearing or bullish, respectively.
If the wick of the candle points downwards, place a call option. If the wick points upwards, place a put option.
5. Strategy – Candlestick Formation Patterns Strategy.
If you know how to read asset charts, you can try out this strategy. Candlesticks show you a lot of information about how the asset behaves over time. The candlestick’s bottom is the lowest price it hit, and its top indicates its highest price.
You can also see the asset’s opening and closing price between the top and the bottom of the candlestick. In this strategy, you must observe the asset’s price over time.
You will start to see formations that repeat over time, which will reveal the potential movement of the price in the future. Typically, you will see long candlesticks on the ends of the asset chart ("mountains") and a collection of short candlesticks in between them ("valley").
How to apply.
If you see that the candlesticks of an asset are taller and the price is experiencing a peak, you can expect the price to fall soon. On the other hand, if you see a trough of candlesticks, you can expect the price to rise.
These mountains and valleys often appear over months. You can set expiry times by looking at the frequency of a mountain and valley appearing to make a profit.
(Risk warning: Your capital can be at risk)
6. Strategy – Fundamental Analysis.
Fundamental analysis is less a strategy and more a tool to help you understand an asset better. The goal of fundamental analysis is to gain information about the asset so you can profit from it later.
It requires you to perform an in-depth review of every aspect of the asset or company. Next, you must place a low-risk trade to see what happens, and you must trade an amount you’re willing to lose.
Once the trade expires, you will know if you can make money from the asset and trade larger amounts.
How toapply.
Let’s say you’re unfamiliar with an asset, but know that the market is volatile and there is potential for gains.
You must then study the asset and place a small trade (as a call or put) to test out a strategy you think will work. If it works, you can trade larger amounts in the short term to make profits, and if it doesn’t, you don’t lose much and know that you can try again.
7. Strategy – The Hedging Strategy.
Some traders consider hedging lazy, and for good reason. It involves placing both calls and puts on the asset at the same time.
In a way, it is similar to the straddle strategy – you will make money regardless of where the price goes.
However, you must calculate the cost of losing to make sure you actually don’t lose money when the trades expire.
8. Strategy – The Momentum Strategy.
Using the momentum indicator is an excellent way to determine how fast the asset’s price is moving upwards or downwards.
Learning to use the indicator can help binary options traders estimate an asset’s price in the future and make profitable trades. It is also a great method of picking the right type of Binary Option.
The momentum of an asset can be analyzed in different ways:
Process-oriented analysis: The momentum is analyzed by considering every period and calculating the distance it has moved on average. Many indicators calculate this value differently, but the most popular indicator of process-oriented analysis is the Average True Range. Relative analysis: A few indicators of momentum compare the price’s current movement to the asset’s historical average momentum. These indicators enable you to understand if it’s the right time to use a binary option and attempt to make profits. If there are strong movements in the asset’s price, you will be able to make super profitable trades if you can manage the high risk. You can also choose to trade assets with smaller movements and low risk to make smaller profits. Absolute analysis: These indicators compare the current price to the asset’s price in the past while ignoring everything in between. The momentum indicator is the most popular tool for absolute analysis and compares the last period’s closing price to the asset’s closing price 14 weeks ago.
You will see the result of these indicators’ calculations as a percentage value with the baseline being 100.
Using boundary options is one of the best ways to leverage the momentum and win trades. In fact, they are the only option type that will let you win a trade based only on the momentum.
Since the two target prices in boundary options are equally far away from the current market price, you don’t have to worry about the direction in which the price is going.
As long as the price is moving fast enough, you will make money.
9. Strategy – Money Flow Index strategy.
Using the MFI indicator is one of the most effective ways to make money using Binary Options in short periods. It’s one of the best five-minute strategies out there.
One of the things you need to know about trading Binary Options is that the market isn’t as random in the short term. Furthermore, since your capital will be blocked for a short time, you will be able to make many more trades in a day.
However, all short-term strategies are based on technical analysis, including this one. This is because no stock’s price rises or falls in the short-term because the company behind it is doing well or badly.
In short periods, the only thing that influences the price of assets is the supply and the demand. Technical analysis is the only way to understand if traders are buying or selling, and one of the best indicators that help you understand this relationship is the Money Flow Index (MFI) indicator.
The indicator compares the number of assets sold to the number of assets bought, generating a value between 0 and 100.
Here’s how the indicator works:
If the value is 0, all the active traders want to sell the asset. If the value is 100, all the active traders want to buy the asset. If the value is 50, the number of active traders wanting to buy and sell the asset is equal.
If you understand the relationship between the traders that are buying and selling an asset, you can also estimate what will happen to the price of the asset since it is determined by supply and demand.
If too many traders have bought an asset, there aren’t many traders left to push the price upwards. The demand will go down, and the price will fall.
Similarly, if too many traders have sold an asset, there aren’t many traders to push the price down. The supply will exhaust, and the market will rise.
Now that you understand how the market works, here’s how you can use the MFI indicator to your advantage:
If the MFI is >80, the asset is overbought, and the price will likely fall soon. If the MFI is 80, you can invest in a low binary option to make a profit. In contrast, if the MFI of an asset is <20, you can invest in a high binary option to make a profit.
The MFI strategy works exceptionally well in five-minute spans. However, in the long run, and in periods longer than a year, the MFI remains in the extremes.
The fundamental influences have a strong effect on the asset and will push the price in the same direction for years. Using this strategy to make long-term trades won’t work out well for you.
10. Strategy – Rainbow Pattern Strategy.
Once you’ve spent some time studying the market and have some experience, you can consider using the rainbow pattern strategy to increase the chances of successful trading. The strategy combines simple signals to make sophisticated predictions about the price.
The rainbow pattern strategy involves using many moving averages with different periods, and each of them is identified by a different color (hence the name "rainbow pattern").
Moving averages that use many periods don’t react to price changes as quickly as moving averages with fewer periods.
When there’s a strong movement, the moving averages will be stocked from slowest to fastest in the trend direction.
The fastest-moving average will be closest to the price; the second-fastest will be the second closest, and so on.
When you see that multiple moving averages are stacked in the right way, you will know that the price is making a strong movement in one direction. This is the right time to invest.
While you can use as many moving averages as you like, most traders use three.
If the shortest moving average is above the medium one, which is above the longest moving average, bet on the prices rising. If the shortest average is below the medium average, which is below the longest moving average, you must bet on the prices falling.
While you can set the moving averages to have any number of periods, consider doubling the number of periods in each moving average.
The ratio guarantees that the averages are just different enough to create a helpful and accurate signal. Using the most popular values, 5, 10, and 15 is the right way to go if you’re a beginner. You will see the same opportunities that other traders do, allowing you to tune into the inside knowledge the rest of the market has.
When your moving averages are stacked in the right order, you can:
Invest immediately: Most signals are created right after the final moving average aligns itself the right way. While there is a lot of potential for profit, the risk is just as high. Wait for one period: Waiting for a period to see if the moving averages remain in the same order will bring about a lot of security. Wait for a couple of periods: You can play it very safe and wait for two or more periods to confirm the signal. But keep in mind that waiting too long will reduce the accuracy of your signal. By that time, the market may also begin to turn the other way. If you do decide to wait, make sure it’s no longer than three periods.
Conclusion on the Binary Options strategy.
You must remember that using a strategy just once will not bring you any gains. Repeated trading is the only way to figure out how well the strategy works out for you.
Jumping from idea to idea won’t help – sticking to a strategy and optimizing it to your needs will almost always result in profits.
Now that you’ve learned the ten best binary options strategies test them out and master them using demo accounts. You’ll be ready to take on the market in no time!