Trend Prediction Boundary Binary Options Strategy

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Best Binary Options Strategies

Jay Hawk
Contributor, Benzinga

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Binary options offer financial markets speculators an easy way to trade with limited downside risk. Unlike the underlying assets themselves that have potentially unlimited trading risk, binary purchases generally require a fixed price or premium to perhaps receive a given payout.

A major advantage of using binaries arises from eliminating the risk of order slippage that can occur in especially volatile markets. Not all binary option types suit all market views, so it makes sense to study what each type has to offer.

Before trading binaries, choose a reputable binary option broker and work out a binary strategy that remains a winning strategy on a consistent basis.

Quick Look: The Best Binary Options Strategies

  • Directional or Trend Trading
  • Swing Trading
  • Range and Range Breakout Trading
  • News Trading
  • Candlestick Pattern Trading
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Overview: Binary Options Strategies

The key elements of your binary options trading strategy should include:

  1. The type of binary option used
  2. When to use it
  3. The amount to trade
  4. Your exit plan.

You will also want to determine what the best binary options type will be for your particular trading style and objectives.

For example, many binary option brokers will provide pricing in up/down, one or no touch, boundary and double one or no touch binary options. Each of these types can suit a particular directional view.

What Makes A Great Binary Options Strategy?

As most experienced traders will tell you, the binary option trading strategy you choose paves the way for your eventual success or failure. In general, a great binary option strategy will be one that involves a trading method or which generates a signal that makes your binary option trades consistently profitable.

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Some of the best binary option strategies operate in very short time frames suitable for short term expirations of one minute to one hour. Other strategies might focus on forecasting end-of-day or end-of-week levels that correspond to daily or weekly close binary expirations.

Any great trading strategy consists of one that works in practice to generate respectable profits given the time invested. Also, test a strategy in a demo account and have a sound money management strategy to complement your trading signals.

The sections below will discuss some of the more popular trading strategies that binary option traders use. You can also combine some of these strategies or create your own from a combination of technical trading signals.

Strategy 1: Directional or Trend Trading

When an asset’s price or an exchange rate generally moves in one direction or the other within a given time period, a trend exists in the direction of the overall movement.

If the market value moves upward and makes higher highs in the process, it forms an uptrend. Conversely, if the market generally declines and makes a series of lower lows, it creates a downtrend. Trends can show up on charts on any time frame, so binary option traders can usually trade them effectively. The schematic diagram below shows what uptrends and downtrends look like.

Those who trade trends with binary options generally overlook small swings in market valuation. Instead, they put their attention on discerning the overall directional move within a particular time frame using technical analysis techniques and indicators.

Trend trading involves taking fewer positions for bigger gains than most other trading strategies, so commissions usually seem minimal. A trend trading strategy seems appropriate to use with high-commission brokers that offer a wider range of binary products and asset classes.

A popular trend trading method, which virtually all binary options brokers offer, involves the use of the call/put binary option. A call binary option pays off if an asset’s price ends up higher than its strike price after a set period of time. A put binary option pays off if the value finishes lower than its strike price.

Trend traders can also use the riskier, but potentially more profitable, one-touch binary option. This involves predicting a target level that you expect the market will reach within the trend to achieve a payout once that level trades.

Some trend traders even use a combination of both binary option types. This generally costs less than using call/put binaries and helps them increase potential profits if their directional view pans out.

Strategy 2: Swing Trading

Instead of trading the overall trend, you could achieve higher gains by trading each swing in an asset’s value as it moves up and down in a non-linear fashion. Such price swings also tend to occur in predictable patterns and proportions. This can give savvy binary option traders an opportunity to profit.

While trend traders tend to ignore these market fluctuations by focusing on the overall direction, swing traders nimbly switch directions to profit from them. Swing traders tend to trade more often than trend traders, which can increase transaction costs.

Swing trading also involves having a good sense of market momentum. This requires you to reverse positions when market trends wane, while holding positions in the direction of the trend while the trend remains strong.

As a swing trader, you have several chances to use binaries to benefit from a trend and its various corrections, instead of just holding a binary option position in the direction of the trend. Since these swings tend to be of a shorter-term duration than the overall trend, you can often position for them using binary options.

For example, you could buy a call binary when a downswing occurs within an upwards trend in anticipation of a subsequent move higher. In another scenario, you could purchase a put binary when an upswing materializes in a downtrend, since the market might then reverse and continue its overall move lower.

Furthermore, you can buy a put or call binary when the market looks respectively overbought or oversold in anticipation of a counter-trend correction.

Strategy 3: Range and Range Breakout Trading

Range and range breakout traders consist of those who identify trading ranges and attempt to profit from them. Trading ranges occur when a market fluctuates within upper and lower boundaries.

If you plan on employing a range trading or breakout strategy, you will tend to use boundary binary options. In boundary binaries involve setting an upper and lower value that you expect the market will remain between by the time the option expires.

Alternatively, if you wish to trade a breakout of a trading range, you can instead use an out boundary binary option. This lets you set a range with boundary levels that you expect the market to trade outside of at expiration.

Strategy 4: News Trading

Fundamental traders sometimes rely on key news releases to create market volatility they can profit from. When a news outcome improves on the market’s consensus, the result seems favorable for the asset or currency affected. This typically leads to a higher market valuation. Conversely, when the result disappoints the market, a negative effect on valuation tends to occur.

One of the major risks involved in trading such news events consists of stop-loss order slippage. Requotes and/or market order execution delays can also result in a serious unanticipated loss for a trader. These issues seem especially likely to occur even with reputable brokers in the volatile or “fast” markets surrounding a key news release.

Using binary options to trade the news can eliminate this execution risk completely and make a news trading strategy much safer. Still, it pays to keep in mind that news trading outcomes remain quite unpredictable due to significant variation in the size and duration of news-related moves.

Depending on what you expect to occur, these possible binary option alternatives could fit into a news trading strategy:

  • If you expect a large move in either direction by expiration, you can buy an out boundary option. This pays off if the market ends up outside the specified range upon expiry.
  • If you expect a large move in either direction shortly after the news release, you can buy a double one-touch binary that pays off if either trigger level gets breached before expiration. The trigger options used in this strategy will often have a very short time until expiration, such as 60 seconds, to maximize returns and minimize cost.

If you observe a large move shortly after the news release and you expect a retracement to follow, then you can buy a call binary if the market fell after the release or a put binary if the market rose. If the market does indeed snap back, then buy a put binary once the correction higher seems to wane or a call binary if the correction lower starts to fade.

Assuming both options have the same strike price, the goal of this news strategy involves legging into a long binary straddle position that has a 100% chance of paying out no matter whether the market rises, falls or stays the same.

Strategy 5: Candlestick pattern trading

Candlestick charts display some well-defined patterns that technical analysts often consider to have predictive value. While a detailed discussion of how to trade based on candlestick formations seems outside the scope of this article, an excellent book to learn about with the subject in detail is Japanese Candlestick Charting Techniques by Steve Nilson.

An example of a candlestick pattern you can use in binary option trading: if you observe a gap on the candlestick chart under normal trading conditions, then it may indicate a future move in the direction of the gap.

For example, if the market gapped higher, it would suggest purchasing a binary call option. A gap to the downside would indicate buying a put binary.

Final Thoughts

Binary option strategies can only get you so far, since your broker and various other factors can also impact your success. Selecting a suitable trading partner from among the best binary option brokers for your trading style and strategy contributes another key element to a winning binary option trading plan.

Trend Channel Trading Strategy

Trend channels are a highly useful technical analysis and trading tool. Trend channels are easy to draw and provide trade ideas and entry signals, with the proper strategy. Here I’ll show you what these technical tools are and a simple and useful trend channel binary trading strategy.

A trend channel is two lines that run along the price highs and price lows of a trend. Typically these lines should run pretty close to parallel of each other. If lines are converging on each other this is likely a wedge pattern, and if the lines are moving away from each other, this could be a broadening wedge. These are different patterns altogether, so ideally we want the trendlines running pretty much parallel to each other. Figure 1 shows a trend channel in General Electric (NYSE:GE) stock. The lines are pretty close to parallel with each other, and the lines are touching nearly all the major price peaks and troughs.

Figure 1. Trend Channel – General Electric Daily Chart

Drawing a Trend Channel

A trend channel is a guideline, therefore, I prefer it to run along multiple high and low points, instead of running along only the extreme high and low points. I like this method because usually markets don’t move in perfect trend channels anyway. Rather, the price may move just above or below it before reversing course and heading back to toward to the other side of the trend channel.

Therefore, I use “lines of best fit” when drawing trend channels. Don’t worry if the lines don’t perfectly contain all the price action, because it isn’t necessary to get quality trade signals.

Trend Channels Trading

Trading trend channels, when you find them, involves a surprising simple strategy. The first step is to find a trending asset. Then focus on assets which are moving in a relatively rhythmic way, such as General Electric in figure 1. Once the trendline are drawn the price seems to gravitate toward these lines; moving into the vicinity of the line and then reversing course.

Most traders make an error in that they jump into trades too soon. They assume the price will stay within the trend channel, but as figure 1 showed often the price will overshoot the trend channel resulting in a loss or a poorly timed trade. Another problem is that traders wait for the price to touch one of the trendlines before buying (lower trendline) or selling/shorting (upper trendline). As figure 1 showed though, markets don’t move perfectly and it is highly improbable that the price will move right to the trendline and then reverse.

The following trend channel trading strategy takes care of these two issues. It requires that you’re patient and let the market determine when you make your trade, and not the other way around.

Trend Channel Trading Strategy

The rules for trend channel trading are simple. Once you’ve found an asset you want to trade and drawn your trendlines, wait for the price to move toward one of the trendlines.

The simplest trades are when the price comes very close to one of the trendlines, or the price moves through it. When either of these scenarios occurs, as soon as you see one bar moving in the opposite direction (back toward the opposite side of the trend channel), take a position.

For example, if the price is dropping and comes very close to the lower trend line wait for the price to start moving higher (toward the upper trend channel line). When it does, take a long position (buy call). Same for if the price pierces one of the lines. For example, if the price rallies slightly above the upper trendline, watch for the same reversal pattern. You want to see the price reverse, for at least one bar, and when it does you take a short position (buy put).

Figure 2 shows a zoomed in shot with a couple examples in General Electric stock.

Figure 2. Trend Channel Trading Examples – General Electric Daily Chart

When the price doesn’t reach one of the trendlines the strategy can still be used, but with a few cautionary notes. If you are going to trade reversal signals inside the trendlines, ideally these signals should occur within about 2% of one of the trendlines.

Figure 3. Trend Channel Trading inside the Channel

Figure 3 shows an example where the price didn’t reach the upper line, but was still a tradable reversal, since it came with a few percent of the trendline. In this case, the trendline at the time of the bar was intersecting at 24.75. So 2% of that is roughly 50 cents. That means the price must reach at least 24.25 (24.75-0.50) in order to take the trade. The price reached 24.45, which is closer to the trendline, so the trade is taken.

By only taking the trades that reach close to the trendlines, touch the trendlines or slightly penetrate the trendlines we avoid much of the whip-saw like movement that occurs toward the middle the channel. While it won’t always be the case, the reversals are quite decisive near the trendlines.

If trading binary options your exit is straight forward: exit two to three bars after your entry. For example, if you are trading on a 5 minute chart, you’d want to choose an expiry that is roughly 10 to 15 minutes away.

If trading traditional markets such as forex or stocks, exit your position at 70% of trend channel. For example if the trend channel is $3 wide and you go long near the bottom you’d exit at $3×0.70=$2.25 from the low of the range. Figure 4 shows an example of this, as well as where to place a stop loss. A stop loss should be placed below the recent swing low for long trades, and above the recent swing high for short trades.

Figure 4. Trend Channel Trading Exit Point

If the trend channel is up, ideally focus on long trades which will position you in alignment with the uptrend. If the trend is down, ideally focus on short trades which will position you in alignment with the downtrend. Also, watch for reversals that occur near the trendlines, and don’t worry about what happens toward the middle of the trend channel. Don’t assume a reversal will occur. Instead, wait for the price to “bounce” off a trendline for at least one bar before taking a trade.

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Best Binary Options Strategy For Beginner & Experienced Traders – Binoption

Traders are constantly in need of a working binary options strategy for their trading.

Without a trading strategy, no trader can achieve success in trading.

Whether it be forex, crypto, stocks, indices, or any other asset, you need a strategy that suits your trading style and brings you consistent profits.

The common misconception among non-traders is that trading is a game of luck. The reality is far from the truth.

Trading is a very complex activity. There is a lot of reasoning behind every action that is performed.

A trader carefully selects his trading asset, analyzes its market, performs technical analysis, and then performs the trade.

Even after all this, the chances of winning are pretty slim. You cannot out predict the market.

Binary Options are based on a yes/no proposition.

Earning a payout depends on accurately predicting the outcome of the market beforehand.

If you guess wrongly, you will lose your investment.

Therefore, it is extremely important you trade with caution.

A trading strategy is the backbone of any successful trade.

Our strategy section contains various articles that will cover all aspects of binary options strategy.

You will learn how to utilize different strategies and when to use which one.

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What Is Trading Strategy For Binary Options?

A trading strategy is basically a well-thought out plan that is designed in order to profit from the trading market.

A strategy is formed on the basis of both fundamental and technical analysis.

Fundamental analysis involves analyzing the factors that affect the asset’s market value such as economic and financial conditions, interest rates, company earnings, competitors, and much more.

After analyzing these factors, the asset price will be estimated.

The analyst then compares this estimated price with the current market value and determine if the asset is undervalued or overvalued.

If it is overvalued, the recommendation would be to sell it, and buy if is undervalued.

Technical analysis is the process of analyzing the market through trends and and information collected from trading such as volume and price movement over a certain period of time.

Using indicators and graphical tools, trends are recognized and future price movement is predicted.

When forming a trading strategy, you need to combination of both.

In our strategy guides, we guide you step-by-step, to do exactly that.

The Need For Successful Binary Options Strategy

Though many new comers are of the opinion that there is no need for trading strategies for making money through binary options , this article will help you to understand the real reasoning for the need.

These binary options strategy collectively will help you in understanding and analyzing whether you made profit at the end of each month.

In order to know this, firstly every trader should be aware of what they are doing.

Basically as a trader you should be aware of where the results of your trades are arising from.

Trading without strategies is driven by emotions and will be random.

After certain point of time, you would have either made some money or not.

But there will be no certainty thus you will be unable to be understand what helped you to make or lose money.

This lack of information will be a block for improvement.

This can also result in try different trading styles on a regular basis and will be unable to settle with some style that will surely help you to make some money.

In order to make trading fruitful, learn how to trade binary options.

As you will have clear picture of the amount of money you make and the source for the same, there will be less chance of failure or struggle.

In this way, you can concentrate on those styles of trading that are your strength and can eliminate the chances of you failing.

It is essential to keep in mind, no one is a master in trading binary options nor are they born with the skill of trading.

All these are learnt through information and experience.

However, following some binary options strategy are a tool that will help you to improve your trading overtime.

It can be said that- ‘Only with the help of knowing what you are doing to your trades, you will be able to judge or predict the result of your initiatives”.

To summarize, you will need a working binary options strategy for the following reasons:

  • Profitable trading
  • Focus on trading without distractions
  • Measure and improve performance
  • Eliminate emotions from trading
  • Prevent over trading
  • Enrich your trading knowledge
  • Reduce risks in trading
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