I want to focus on the various binary trading strategies a trader may implement. Though it is best for a novice trader to use only one type of strategy, more experienced traders can use a combination of strategies. Such combinations are only sensible to use if you are trading different types of underlying options or trading over different time frames. The main strategies a trader may use are:
Long Up Binaries:
Purchasing an up binary option gives a trader a xed payout if the market exceeds the binary option’s strike price at its expiration in return for a known up front cost. Up binaries can be used to take a bullish view on the underlying market.
The higher the strike price of the up binary, the cheaper its cost, but the less likely it will payout. Long Up binary positions have limited downside risk and limited upside potential.
Long Down Binaries:
Purchasing a down binary option gives you a xed payout if the market is below the binary option’s strike price at its expiration in return for a known up front cost.
Down binaries can be used to take a bearish view on the underlying market. The lower the strike price of the down binary, the cheaper its cost, but the less likely it will payout. Long Down binary positions have limited downside risk and limited upside potential.
Long In Boundary Binaries:
Purchasing an In Boundary binary option gives you a xed payout if the market ends up inside the range de ned by its two strike prices at expiration in return for a known up front cost.
A long In Boundary binary position can be used to take a stable and neutral view on the underlying market. The narrower the strike prices of the In Boundary binary, the cheaper its cost, but the less likely it will payout. Long In Boundary binary positions have limited downside risk and limited upside potential.
Long Out Boundary Binaries:
Purchasing an Out Boundary binary option gives you a fixed payout if the market ends up outside the range de ned by its two strike prices at expiration in return for a known up front cost.
Binary News Trading:
Binary news trading strategies involve taking binary positions around the release of important news events or economic data.
Long Binary Options are ideal for news trading due to their limited downside risk that is known in advance. This can help traders avoid costly slippage on stop loss orders that can occur in volatile post-release markets.
Most binary news trading strategies involve predicting how the underlying market will react to a news event. Popular economic releases to trade binaries around include: employment, in action, growth and retail sales data, as well as central bank interest rate decisions.
Binary Chart Level Trading:
Binary chart level trading involves reviewing exchange rate charts for signi cant levels of support and resistance.
Support levels are below the current market and indicate where the market is likely to reverse higher. Resistance levels are above the market and indicate where the market may reverse lower.
Binary chart level traders typically attempt to buy a Down binary ahead of resistance or buy an Up Binary above support. They might also close out their binary option position for a loss if the chart level breaks and perhaps even establish a long binary of the opposite type to take advantage of the follow-on move.
Binary Trend Trading:
Binary trend trading involves identifying and then following an established directional market movement by purchasing an appropriate binary option.
A bullish trader might look for a good opportunity to purchase an Up binary option, while a bearish trader may seek to buy a Down binary option.
Binary trend traders will usually look for trending chart patterns like channels or for trending signals from one or more technical indicators like a pair of moving averages, the MACD, or the Average Directional Movement Index (ADX).
Binary Swing Trading:
Binary swing trading strategies usually try to pro t from both trends and counter- trend corrections by following the momentum of the underlying market.
When the underlying market is trending higher, a swing trader will purchase an Up Binary. When it is trending lower, they will purchase a Down Binary.
If their momentum indicators signal a trend reversal has occurred or will soon occur, binary swing traders might then sell out their trend following position and purchase a binary of the opposite direction to pro t from the anticipated counter-trend correction.
Binary Breakout Trading:
Binary breakout trading strategy involves the use of pivot points to trade breakouts. This strategy works best for traders who have a willingness to take risks and the ability to act fast. The strategy can be easily accomplished by following a quick three-step plan.
The rst step is carrying out an accurate analysis of the current trends for the options traded. These trends occur when a signi cant number of traders take actions that drive trade in a particular direction. When traders get news of an impending event that may in uence price trends, they will make trade decisions that will result in a trend that is replicated by a good number of traders. As a trader, you should be able to conduct analysis that identi es such trends and be ready to ride those trends and pro t from the price movements.
The next step is watching out for inactive options. Breakouts usually happen with options that do not exhibit noteworthy price increases or decreases over long time periods. Such inactive option prices typically remain within pivot points or upper price levels and lower price levels. When the inactive option severally touches the pivot point, this may be a sign of a breakout almost happening. The chances of the breakout happening increase with an increase in the number of times the option’s price touches the pivot point.
When using pivot points to trade breakouts in Binary Options, the third step the trader has to take is to check the option’s price to and out whether it has reached the resistance level and how many times it has done that. If the option’s overall upper and lower price values show a gradual increase after testing the resistance level several times then the trader should act fast and enter the trade.