Learning to understand and use the various binary options strategies available will make a huge difference to your success rate and your rate of returns. This does not mean you should adopt any strategy you find; it must be the one which suits you and your trading style. This will help to keep you trading and generating a profit for the long term; as opposed to giving up on binary options trading and turning to something else. The only way to be certain that you have chosen a strategy which works for you is to understand a few simple points:
Binary Option Strategy
The first step must be to identify what constitutes a binary options strategy. In effect it is much the same as any strategy; you will follow a set of pre-defined rules in order to achieve an acceptable result. In the case of a binary options strategy these rules will tell you how to study the markets and what clues you should be looking for. Once you have found a potential trading spot the rules will provide you with guidance regarding how and when you should trade. Alongside this you should have a guide regarding how much you are prepared to invest in each trade. This figure may be decided by following the rules of your strategy; it may also be chosen by having a set money management policy; such as only ever investing five or ten percent of your available funds.
The advantage of the right binary options strategy means that you will be able to focus on specific assets and will instinctively know which types of trade should be used and the appropriate length of your trade. To develop a good binary options strategy you need to define the following:
- Binary Options Trading Strategy – This is stage one and will help you to choose the right assets for your investments as well as the right approach to analyzing the market. The most logical step is to choose a type of asset, such as indices or stocks. Then to decide whether to use technical analysis or fundamental analysis to decide when an opportunity to trade is available. Knowing these facts will help you to choose the right binary strategy for your needs.
- Binary Options Money Management – As already mentioned this is a vital part of any strategy. You must know how much capital you are prepared to risk on a specific trade and have the discipline to stick to your set amount; no matter how good the trade looks. You should never trade a high proportion of your available capital unless you have an abundance of funds to top it up with. If the trade goes against you it is unlikely you will recover from this reckless approach to your funds. However, it is also possible to place too little funds into a trade. Although you are likely to keep hold of your initial funds it is unlikely you will ever generate a significant amount of profit. Striking a balance is essential.
- Analyze and Improve – This is essential! The longer you trade the more likely it is that you will be building up a small profit or even a loss. To ensure you stay successful and generate funds in the future you need to analyze your current strategy and look for its weaknesses. You can then decide how to improve your strategy and adjust it accordingly.
One of the easiest ways of approaching this is to either keep a physical diary of all your trades, the relevant trading information and the outcome. Alternatively you can log all this information onto your computer into a spreadsheet. This will then enable you to review your trades in a very short space of time and identify consistent weak points or strong points which need building on. A simple example is that your date shows you generally finish in the money when you trade on a downwards price, but not on an upward price. This shows that you are better at predicting downward movements and you should focus more on those. A natural development of your binary options strategy would then be to stop trading on rising prices and only trade on decreasing ones. By continuing to keep your log you will be able to analyze this approach over the following weeks and even months to see if the change of strategy improves your profit.
Why Do You Need Binary Options Strategy
Emotions are the downfall of many traders. Whether you are on a successful roll and decided to invest more than usual because you are having an invincible day. Or, you may react badly to a day of losses and be determined to regain your funds; in the process placing more and more risky trades. By using a strategy you remove the emotional part of any equation. This means that every trade is based upon its own merits. Trading on gut instinct or emotion can provide successful results; but, over the long term it will not develop a consistent profit.
Perhaps the most important part of this equation is ensuring that you analyze and improve. This will help you to become a better trader. Without a strategy you will always trade the same way and achieve the same level of results.
Finding the Right Binary Options Strategy
There are many different strategies and it is difficult to know which the right strategy is for you. In fact, it will probably be the opposite of the strategy you expect to work for you! Instead of losing money trading with the wrong strategy it is essential to choose a broker who has a demo account option. You will then be able to trade with virtual funds and try a variety of different strategies. This is the perfect way of locating the best strategy for your needs without risking a penny. The important thing to remember when trading with a demo account is to treat it as though it is your own funds; this will provide a realistic trading experience and help you choose the right binary options strategy.
Binary Strategy – Does it Work?
Every strategy will have some successful trades and some which are not. The only way of telling whether you have a successful strategy is confirming that it is one that you are comfortable with and monitoring the percentage of winning trades as well as your overall profit. A strategy will provide you with the edge instead of the broker and allow you to trade at a profit instead of simply breaking even.
There are too many strategies to mist all of them, but the following ones can be a good starting point for new traders:
- Following a market trend. You will quickly realize that a rising price is usually followed by a drop or two and then a further rise. In fact, many assets move in a very specific pattern. Noticing what this is and then following the trend in the market will allow you to capitalize on the market movement.
- Trading The News – It is possible and can be extremely beneficial to trade according to the latest news. In effect, many assets react according to a market development. However, understanding which way the market will move is difficult; it can often be the opposite too your initial expectations. To be completely accurate it would be necessary to know exactly how everyone in the market will react to a specific piece of. As this is not realistic the best approach in a binary market is to create boundaries which will confine the price of the asset and allow you to cover movements in either direction.
- Technical Analysis – This involves looking at the various price charts to see how assets have moved in the past. You are likely to be able to identify a pattern and then trade according to this: on the assumption that the pattern will continue in the future. This strategy involves setting indicators which will show when a specific asset is over sold or even overbought. As soon as you see current trading enter these areas of your charts you know the asset will shortly change price direction and trade accordingly.
Choosing the right strategy and refining it takes time; but the effort is worthwhile!