Best Binary Options Strategies You Should Know
Best Binary Options Strategies in 2024:
Follow Trends – Trading with market trends
Follow the News – Trading based on news events
The Candlestick Formation Patterns Strategy – Trading with candlestick patterns
The Hedging Strategy – Reducing risk through diversification.
The Pinocchio Strategy – Trading with candlestick patterns
There is no one binary options trading strategy that is perfect for all traders. It’s best to test out a number of strategies to find the one that works for your trading style and needs. In this guide, we’ll explore a few common strategies used by expert binary options traders, as well as ways that you can find the best strategy or even develop your own strategy.
Start trading binary options right now with Pocket Option!How do binary options trading work?
Let’s say you have a commodity – gold in this case. The price of that commodity fluctuates constantly, rarely ever stays the same for long. When it comes to binary options, you are essentially placing a bet on whether or not that price will rise or go down by a certain expiration date. There are many ways to accurately predict this, most of which involve heavy research into the current state and history of the commodity. Once you place your bet and the capital you wish to risk, you will either win or lose. If you win, that means your prediction was accurate. It doesn’t matter what exactly the price was at the time of expiration, it only matters if it rose in price or lowered in price.
When you win, you receive your wagered funds in addition to a very high percentage of returns. If your prediction is not accurate, you will lose everything that you wagered. Because of this, it really is important to only bet 1-2%, at most 5%, of your total capital when it comes to binary options trading. It’s a very risky market to toy around with, but the returns are potentially massive. It’s also worth noting that at any point before the option expires, traders can choose to close their position to lock in a specific profit or to reduce a likely loss. It’s a very attentive form of trading akin to day trading.
What is a Binary Options Strategy?
Binary options trading offers a variety of new and seasoned market players an excellent way to trade on the specific direction of an asset commodity, as well as the specific market, due to binary options’ all-or-nothing nature. In addition to very simple and direct risk/reward profiles and clearly defined risk, binary options trading can be used for very short-term strategies because of the very short, sometimes hourly, contract expirations.
Binary options can pay out depending on the end outcome of a "yes or no" prediction, making them very clear and flexible yet risky trading tools. Binaries options can be used to make specifically directional bets, but they can just as well be used to make money from sideways markets or to trade on market volatility.
Because binary options are considered “all-or-nothing” bets, they tend to have little resemblance to traditional forms of options trading. Traditional options and binary options feature very different types of payouts, bets, fees, and risks. They also differ quite a bit when it comes to their uncommon liquidity structure and overall investment process.
With traditional options trading alone, a strategy is needed. This is even more so for binary options trading. A binary options trading strategy is necessary when trading binary options. This is a very volatile market to enter into. Without any semblance of guidance, a vast majority of newbie traders will experience losses. The only way to really find success in binary options trading is by using a tried and true strategy.
Top 7 Best Binary Strategies
Binary Options Trading
It’s worth noting that while all of these strategies are tried and true for expert traders, they may not always result in serious profits. Binary options trading is an extremely volatile market. Even with the right know-how and strategies in place, you could find yourself with significant losses. In general, it is recommended not to risk more than 5% of your total capital with binary options trading. In fact, many expert traders opt to only risk about 1% to 2% of their total capital. You can get some serious gains with binary options trading, but the risks are hefty enough that you should keep your investments at a minimum.
1. Follow Trends
No matter your market or asset, the best way to make money with binary options is to follow trends. Asset prices will fluctuate with trends, and prices will grow or shrink with their associated assets. This is because the binary options market is based on trader speculation, all in real-time. Trends will follow a zigzag pattern, and traders following this strategy will trade with current trends or with swings. Examine your chart and look at your trend lines. If a line is flat, then look for a different asset to trade. If the line is rising, there's a good chance that the price will go up.
Bitcoin price chart
A moving average (MA) is a commonly used indicator for identifying the direction of the trend.
In this example Bitcoin's price began to trend upwards after crossing MA from below and trading above for some time. If a strong trend is in place then price retracements to MA might be a good entry point.
2. Follow the News
This aligns well with our first strategy. Following different news events that relate to your asset can help you predict how it will trade. Following the news is a lot easier than technical analysis, making it great for beginner traders. Look at the news online, on television, over the radio, and in newspapers once you pick your asset of choice. Follow tech companies and identify when an announcement is about to be made. If a company is about to release a new product, you can opt to purchase options and wait for the profits to come in once the product is released.
3. The Candlestick Formation Patterns Strategy
If you can read asset charts, give this strategy a shot. Candlesticks show traders how an asset changes over time. The bottom of the candle is the lowest price that asset reached, while the top of the candle is its highest historical price. With this chart, one can also see the opening and closing prices of the asset. When examining the history of an asset, you will likely see a pattern occurring. During certain times, the asset will rise or fall. With this in mind, traders can place call or put options based on the historical trends of the asset.
Candlestick Patterns Strategy
There is a large amount of candlestick patterns and you can learn the most popular ones in our article Top 20 Chart Candlestick Patterns.
4. The Hedging Strategy
This simple but not always accurate strategy is worth trying out as a newbie. This process involves placing both a call and a put option on an asset at the exact same time. No matter where the price may go, you’ll still make money. Still, you will need to accurately calculate the risk and cost of losing that option to ensure that you don’t actually lose that money when your trades expire.
5. The Pinocchio Strategy
The Pinocchio Strategy, often referred to as the "Pin Bar" strategy in the realm of Forex and binary options trading, is based on a particular candlestick pattern. The name "Pinocchio" is derived from the famous children's fairy tale character whose nose grew longer whenever he lied. Similarly, the Pin Bar has a long wick (or "shadow") and a small body. The wick should be at least two to three times the size of the body. This wick is symbolic of the "nose" and indicates that the market is "lying" about its real direction,the direction of the wick indicates the opposite of the prevailing trend. For instance, a long wick to the upside indicates a potential bearish reversal.
It works best in ranging, consolidating markets with established trading ranges. Big breakouts invalidate the strategy. The Pin Bar's effectiveness is higher when it forms at significant support or resistance levels, or in confluence with other technical indicators or chart patterns.
The Pinocchio Strategy
6. Fundamental Analysis
Many day traders use this strategy. Though, it's not so much of a strategy as it is a tool designed to help traders grasp an asset with more accuracy. The goal of this strategy is to get data about your asset so you can profit from that asset later on. If you're unfamiliar with a particular asset and the market is volatile and has the potential for wins, place a small trade on that asset. Do this to test out a strategy that you think will be profitable. If your strategy works, then you can place a larger amount on that asset for bigger gains.
4 Basics of the Best Binary Options Trading Strategy
When looking for the right binary options trading strategy, it is quite important to look for a strategy that implements one or all of the following trading basics: signals, risk management, strikes, and emotional control.
Signals
Not every established binary options trading strategy will have a plan for signals. Because of this, it would be wise to create your own signal plan to accompany your binary options strategy of choice. Binary options signals are essentially notifications from businesses, day traders, algorithms, and technical indicators that can help you save time on monitoring and interpreting trends in the market. We recommend doing your own research first to understand how the market works. However, signals can be quite useful for those who want to get into day trading binary options.
Risk Management
Risk management is at the core of binary options trading. This form of trading has an incredible amount of risk. That’s why many seasoned traders refuse to risk anything more than 1% to 5% of their total capital per options trade. We would go as far as to recommend risking no more than 1% of your capital, especially as a beginner. A strategy that details how to minimize your risk so that you do not make too many mistakes and potentially lose all of your risked capital. In general, a solid strategy will help you calculate your position size on each and every trade as you begin. The longer you have been trading and the more comfortable you are with binary options, you won’t have to constantly calculate your position with the fluctuations of the market. Rather, you can simply pick a specific number and trade with that number each time you trade.
Strikes
A strike price is a price at which a specific contract will execute. It’s very important for a solid binary options trading strategy to outline the choice of clear criteria for strikes. For example: If a trader believes that a specific option will not reach a particular price level target, that trader should sell the binary strikes above their price target with the same types of binary option. A good strategy will outline exactly how a trader should act on strike prices.
Emotional Control
Binary options trading relies on a significant amount of emotional control. This goes for most types of investing, but it is especially important for binary options trading. Because of how volatile binary options trading is, it is way too easy to make a bad choice or inaccurate prediction in order to save the profitability of an option. A good binary options trading strategy should also include a high level of emotional control. A good way to improve one’s approach to emotional control is to start with a demo account when starting the trading process.
Best Binary Options Trading Platforms
If you want to get started with binary options trading platforms, you do have some pretty great options. In general, we recommend that novice traders get into the binary options trading world by way of a demo account to begin with. A demo account could be seen as a virtual “videogame” that mimics the real process of betting on binary options, as well as the movements of the market in real-time. The only real difference is that demo accounts provide virtual, fake funds that users can play around with.
How to Detect Good Binary Signals?
The best way to become a successful binary signals trader is to do your own research, study the market, and chart on your own. Outside of this, more practiced binary options traders can use effective signals from reputable providers. Signals can be quite helpful in reducing the amount of real-time market research you’ll be doing as a trader.
Your own Research
While there are many really useful binary signals out there, most of them are not nearly as useful as what you can discover on your own. They also won’t tell you anything that you won’t be able to discover yourself. Always start with your own market and asset research through the internet, newspapers, news stations, etc
Technical Analysis
Things like indicators, signals, and other trading tools are essential for conducting technical analysis. These tools can be used together with things like candlestick chart analysis, channels, and other methods to accurately predict price changes in binary options. Luckily, it is quite easy to learn how to conduct technical analysis with many tutorials and educational materials online, many of which are available through binary options brokers.
Signals Providers
A signals provider is a professional trader, organization, algorithm, or other entity that provides binary options signals to traders. There are many different providers out there. We recommend Learn2Trade, Binary Options Pro Signals, Binary.com, and DBot. Most of these signals are free to use or offer free trials.
Best Binary Strategy For Beginners
In general, we recommend the “go with trends” and “follow the news” strategies for beginners. Not only are these trading strategies fairly easy to start doing, but they also give beginner traders the opportunity to improve their research capabilities. Binary options trading involves so much research, and far too many beginners jump into the process without knowing what they are doing. Not only do you need to know quite a bit about the movements of the market and how binary options trading works, but you also need to understand how your chosen asset or commodity changes and the patterns in price it has experienced.
Expert Tips To Improve your Binary Trading
Need some additional binary options trading tips?
Try implementing these tips for success with binary options trading:
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Understand the binary options market and use the right tools. We’ve said it many times thus far, but it is very important to have a solid understanding of the binary options market and how the market and commodities fluctuate in price. There are many tools out there that can make this easier, such as signals and tutorials.
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Always go with a good broker. Far too many brokers overcharge commission fees and non-trading fees. We recommend going with Pocket Option or Binary.com.
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Practice, practice, practice. Use demo accounts to execute “safe” trades and learn about how the market works. Take a new strategy and implement it constantly, testing it for its usefulness.
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Heavily research your assets. The best way to predict the price of an asset is to look at its history. Are there any patterns in that asset’s candlesticks? Perhaps your asset has been in the news recently?
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Implement a risk and money management plan into your strategy. Only risk 1% of your total capital for each trade. Learn about how to manage your capital in a way that isn’t too similar to gambling.
The above tips are great for both novice traders and expert day traders alike.
How to Improve My Binary Strategy?
In order to really improve your own binary options trading strategy, you have to study. And not just here and there, either. You need to be studying constantly. You need to study statistics, patterns with your chosen commodity or currency, recent news involving your commodity, sudden changes in the market in general, etc. Plenty of online brokers provide educational materials for binary options traders who are just starting out. However, you’ll need to research the ebb and flow of your commodity of choice on your own. Luckily, a quick Google search or access to a newspaper is more than enough.
Can Binary Trading Make Me Rich?
Yes and no. It is indeed possible to get rich with binary options trading. However, this type of trading instrument has substantial risk – much more than stocks and crypto in many cases. It is much more reasonable for a beginner trader to consider binary options trading as a potential form of additional income, rather than a get-rich-quick scheme. Many traders who get into binary options trading lose their capital, especially if too much is put on the line. Before you begin trading your binary options, consider this: Do you actually understand how binary options work? Do you have the time and energy to do initial research, and then ongoing research on strategies, your commodity’s changes, and market changes? Are you prepared to lose everything that you put into your trading? These are all very important things to consider.
Top reasons to trade binary options with a trading strategy
Using a trading strategy can provide several benefits and reasons for traders to adopt a structured approach to their trading activities. Here are some key reasons to use a trading strategy:
Consistency. A trading strategy helps traders establish consistent and systematic rules for entering and exiting trades. By following a predefined set of criteria, traders can avoid impulsive and emotional decisions that can lead to inconsistent results. Consistency is essential for long-term success in trading
Objective decision-making. A trading strategy provides a clear framework for making trading decisions based on predetermined rules and criteria. This helps traders remove emotional biases and subjective judgments from their trading process, leading to more objective and rational decision-making
Risk Management. A well-defined trading strategy incorporates risk management principles, including setting stop-loss orders, position sizing, and risk-reward ratios. This helps traders manage their risk exposure and protect their capital, reducing the potential impact of losses
Increased confidence. Having a trading strategy instills confidence in traders as they have a clear plan to follow. Confidence comes from knowing that trades are based on a logical approach and not influenced by impulsive reactions to market fluctuations. This can help traders stay disciplined and avoid second-guessing their decisions
Adaptability. A trading strategy can be adaptable to different market conditions. It can be designed to take advantage of various market trends, volatility levels, or specific trading sessions. This adaptability allows traders to adjust their approach based on the current market environment, potentially improving their performance
Backtesting and analysis. Developing a trading strategy involves historical data analysis and backtesting. Traders can test their strategies on past market data to evaluate their effectiveness and identify any potential flaws or areas for improvement. Backtesting provides valuable insights into the strategy's performance and helps refine it before real-time implementation
In summary, using a trading strategy provides traders with a systematic and disciplined approach to their trading activities. It promotes consistency, objectivity, risk management, and adaptability, ultimately contributing to improved trading performance and long-term success in the markets.
What makes a great binary options strategy?
A great binary options strategy combines several important elements to ensure its effectiveness. These elements include clear and well-defined rules for entering and exiting trades, effective risk management principles, flexibility to adapt to different market conditions, thorough backtesting and analysis, a clear risk-reward profile, simplicity in its implementation, realistic expectations, and a commitment to continuous improvement. By incorporating these factors, traders can develop a binary options strategy that maximizes their chances of success while managing risk appropriately. It's important to remember that trading binary options carries risks, and no strategy can guarantee profits. Traders should always exercise caution, employ proper risk management techniques, and stay informed about the potential risks associated with binary options trading.
Expert Opinion
Since binary options are considered high-risk trading instruments, the importance of a trading strategy when working with them is particularly high. Relying solely on intuition, as many beginners do, almost guarantees negative results. On the contrary, studying financial markets, risk management, and trading strategies will help increase a trader's chances of success and make more informed trading decisions. Following the trend appears to be the most preferable strategy for beginners, as it reflects the old trader's saying, "The trend is your friend."
FAQs
Can I use bots or signals for trading?
Yes, many traders use automated trading bots or signals services that scan the markets and automatically execute profitable trades. However, signals and bots also carry risks of failed trades.
What is the best timeframe for trading binaries?
There is no universal best timeframe as it depends on individual strategies and risk appetites. Short-term traders may prefer 60-second or 5-minute binaries for day trading. Position traders tend to use end-of-day, weekly, or even longer timeframes up to months in anticipating trends and events.
What indicators work best for strategy?
Popular technical indicators include moving averages, Bollinger Bands, RSI, stochastic oscillator etc. Traders test different combinations. Simple set-ups often work better than complex ones.
How many trades should I place daily?
Most experts advise limiting trades to 1-2 per day when starting out. Over-trading often leads to losses as emotions take over. Take time to analyze each trade's potential before entering it.
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Team that worked on the article
Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.
The area of responsibility of Mikhail includes covering the news of currency and stock markets, fact checking, updating and editing the content published on the Traders Union website. He successfully analyzes complex financial issues and explains their meaning in simple and understandable language for ordinary people. Mikhail generates content that provides full contact with the readers.
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Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
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Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.