Testing Binary Options Strategies – How To Test Your Strategy

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Testing Binary Options Strategies

Before you invest big in your strategy, you have to test it. This article explains how to test your binary options strategy, and how to find the resources that help you make more money.

In detail, you will learn:

  • Why Testing Strategies Is Vital
  • How Do I Test My Trading Strategy?
  • Which Tools Can Help Test Strategies?

With the answers to these questions, you will immediately be able to test your strategy and find the areas in which you need to improve.

Why Testing Strategies Is Vital

You need to test your binary options strategy for two reasons:

  1. You need a winning strategy, or you will end up broke, and
  2. Knowing whether or not you have a winning strategy is difficult because it is a complex decision.

Only a thorough test will help you understand whether or not you have a strategy that can make you money, and, if not, where you need to improve.

Without a test, these questions are impossible to answer. There are a million of variables, and to find out which of them you have to improve to make more money is like looking for a needle in a haystack. A good test can simplify things for you and help you understand where you need to improve.

Trading Long Term

Even if you lose only 1 percent of your account balance over 100 trades, you would eventually end up broke if you trade this strategy. A test will clearly point out this dilemma. Without a test, you will lack the clear indication and might think that your strategy is about right. It would take you longer to make the necessary changes, or you might never make them. Either way, it would cost you a lot of money.

Testing your binary options strategy is your first step to becoming a successful trader. It can save you from unnecessary losses and make you more money – there is no good reason to forgo testing.

How Do I Test My Trading Strategy?

The most important value of your binary options strategy is the winning expectancy. Testing your binary options strategy means determining your winning expectancy and, if necessary, improving it to a point where your strategy makes you money.

Your winning expectancy is the product of your winning percentage and average total return per winning trade. That might sound complicated but is really easy.

Assume that a strategy wins you 65 percent of your trades. You get an average payout of 70 percent, which means that you get an average total return of 170 percent on every winning trade – you get your investment back (100 percent) plus your payout (70 percent) which nets you a total return of 170 percent.

To calculate your winning expectancy, all you have to do is calculate 170 percent of 60 percent. The result is 112 percent.

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Testing Strategy Calculations

Now you know if your strategy is good enough:

  • If your winning expectancy is over 100 percent, you can expect to make money. You can trade this strategy.
  • If your winning expectancy is under 100 percent, you can expect to lose money. You need to improve this strategy.
  • If your winning expectancy is exactly 100 percent, you can expect to break even. You still need to improve this strategy.

The important thing to understand is that the winning expectancy can tell you only whether you will make money with a strategy. It is highly individual value and a bad indicator for comparing strategies between traders.

Every trader is different. They prefer different trading styles, they tolerate risks differently, and they have different strengths. One trader might do better with a strategy based on numbers such as values of technical indicators; another trader might prefer a strategy based on pattern recognition, for example trend analysis or candlestick formations.

If another trader achieves a high winning expectancy with a strategy, this does not necessarily translate well to you. You might lose money with the same strategy.

The point is: to find out your winning percentage, your average payout, and your winning expectancy; you need to test a strategy for yourself.

Large Trading Sample

This test necessarily requires a high number of trades. A test based on only 10 or 15 trades is inconclusive because there is a lot of room for variance and coincidence. You need at least 50, or better 100, trades.

So here’s how you test your strategy:

  1. Trade your strategy for a while.
  2. Note the results of every trade – win or loss, and payout.
  3. Calculate your winning percentage – the share of trades you have won.
  4. Calculate your average payout for every winning trade. Ignore your losing trades for this calculation; they might distort the picture.
  5. Calculate your winning expectancy.
  6. If your winning expectancy is over 100, trade the strategy. If your winning expectancy is under 100, change the strategy until you get a value over 100.

We recommend doing these things in an Excel file. It can automate all calculations, and you can more easily reevaluate the data later.

It also makes sense to keep collecting this data after your initial test. It will help you to monitor your success and recognize mistakes before they cost you money.

Which Tools Can Help Test Strategies?

The most important tool for testing your binary options strategy is a demo account. Demo accounts work just like regular binary options account, but they allow you to trade with play money instead of real money. You get all the features, tools, and binary options types, but without having to fear to lose your hard-earned cash, you can try them completely risk-free.

This is the perfect environment for testing your binary options strategy.

  • If you are completely new to binary options, you can learn the basics without risking anything.
  • You can try different strategies and find the one that is right for you.
  • Experienced traders can try modifications to their strategies or just have some fun.

Testing Via A Demo Account

A demo account can also free you from the need for complicated calculations. Simply trade your strategy for a while and then compare your account balance to what is was before. If you started with £1,000 in play money and now have £1,500, you must have done something right. If you have $500, you have to improve something.

Binary options demos differ from broker to broker.

  • Not all brokers offer demos.
  • Some brokers allow you to register a demo as a stand-alone account; some require you to open a regular trading account and then offer the demo as a feature.
  • Some demos provide you with a lot of play money and allow you to experience the thrill of investing big, others provide you with less money and help you practice starting small.
  • Some brokers allow you to invest as little as £1 per trade; some require significantly more – often around £25 or £50.
  • All demos reflect the features of a broker’s regular account and offer different assets, binary options types, and other features.

To find the right demo for you, take a look at our list of brokers. It will help you quickly understand the differences between brokers and match the multitude of offers to what you are trying to do.

Conclusion

Testing your binary options strategy is the first step to success. A thorough test helps you to find a money-making strategy without risking a single Cent. You can enter the binary options world completely risk-free and improve your strategy until you are ready to invest big.

Testing your binary options strategy also is an ongoing process. Even when you have found a strategy that can make you money, you still have to monitor your success. Careless mistakes can creep into the trading of every trader, which is why you need a tool that keeps you on the right path to success. Testing your strategy is this tool.

With a demo account, you can test your strategy completely risk-free. To find the right broker and the right demo for you, take a look at our list of the best binary options brokers.

How to test binary options strategies on the history

Greetings, fellow binary options traders! Beginners often face the problem of how a fully working trading system suddenly stops working in the real market. And, the reason is not a broker’s fraud or in some wrong indicators. Just at the testing stage, not all factors were taken into account, or the tests were not carried out at all.

It is important to understand that any strategy, even the most trivial, needs some time for approval. It is normal for anyone to make mistakes, and especially in the testing phase, the most obvious disadvantages of freshly-created strategies emerge. In this case, if you tried looking through strategies without testing them, you realize that this approach does not guarantee good quality – there is always a chance to slip up. Demo account is also not the best solution, because it requires too much time to check, while certain trading strategies can be discarded immediately.

In this case, the visual strategy tester is almost a perfect solution. With the help of tester, you can run almost any binary options trading strategy within ten minutes, find out its effectiveness and weaknesses. After a thorough test on history, you will protect yourself from surprises on a real account and will be able to prepare better for the live trade.

Today, we review a unique tool that allows you to trade manually on history, in a simulation mode – BO simulator.

In fact, BO simulator Strategy Tester is a trading simulator, represented in the form of an indicator for MetaTrader 4. By launching the indicator in the visual MT4 tester mode, we can make trades on history, simulating the real trading.

Indicator Features

  • Currency pairs: Any
  • Timeframe: Any
  • Expiration Time: Universal
  • Trading Hours: Around the clock

Installing the indicator on Metatrader 4

  • You must have the Metatrader 4 program installed
  • Download the zip file with the indicator, unpack it. These files need to be copied into MQL4/Indicators folder in your terminal data directory.
  • To get to the data directory, click File -> Open Data Directory in the terminal.
  • Then a folder will be opened, then we enter the Indicators directory of the MQL4 Now, copy the files of your indicator. Close the folder, restart MT4.
  • Next enter your Metatrader 4 terminal, click Tools->Settings on the program’s top panel and on the Expert Advisors tab, put ticks as on the screenshot below. Then click OK.
  • Run the Strategy Tester and click the dropdown Indicator Then we choose our indicator from the list.

Input parameters

  • Starting balance: the deposit you will start trading with;
  • Interest payment: option interest payments – here you better specify the value of your broker;
  • Displayed Font: inscriptions font on the simulator control panel.

Indicator Trade Panel

The upper part has two fields for expiration time input, for minutes and seconds, respectively. Below are the Put or Call buttons, the current price indicator and the field for indicating the size of bets.

Further, this information is displayed:

  • The size of the initial deposit;
  • Interest rate;
  • Current balance;
  • The percentage of growth;
  • The distribution of the types of transactions – ITM, OTM, ATM.

All the rest of the space is given for the transactions.

Each opened transaction consists of blocks with:

  • Option type – Call or Put;
  • Name of the trading instrument;
  • Option buying time;
  • Open price;
  • Price of the option;
  • Current closing price;
  • Remaining time to expiration;

A nice feature is a clear indication of the option expiry time. At the bottom of the block there is a horizontal progress bar, the value of which is reduced in the course of testing, reporting on how much time is left ‘till the contract expiry.

Not to put the same indicators on the chart every time, you can save the template with the needed tools, specifying the name similar to the indicator’s title (without extension). Thus, when you run visual testing the tester will pick up the created template with all the required indicators.

Testing strategy

Let’s try to test a simple strategy on the Bollinger bands. At the candle close beyond the channel, we sell. That is, if the candle closed above the top line, buy a Put option if it is below the bottom – the Call option. Working timeframe – H1 with an expiry time of 15 minutes.

Cascading signals when the candles close one by one beyond the channel boundary should be ignored.

We make transactions as a result of new trading signals, as shown in the picture below.

Conclusion

In conclusion, I would like to thank the author of the development with a nickname MTH2020, who gave so useful and easy to use tool. Actually, the simulator can be used not only to check the ready strategies, but also to train your intuition, or just for the development of the trading process (the indicator can also be used on a regular chart in real-time).

Binary Options Strategies

Why To Use Strategies While Trading Binary Options

There’s no doubt that financial instruments can appear intimidating. When news about the financial markets appears on TV, you’ll often see financial traders sweating over complicated-looking graphs on multiple computer monitors or barking at each other across crowded trading floors. The commentary will describe exotic investment vehicles that can seemingly only be understood by people with PhDs in rocket science. To be clear, there are financial instruments that are very hard for the layperson to understand, but that’s not true of all of them.

Binary options are more popular than some investment vehicles because they are less complicated. There’s a clue in the name, ‘binary,’ because as an investor you’re only having to choose between two options: will the value of an asset go up over time or down? Traders will place a bet on whether the price will increase, which is called a call, or decrease which is called a put. So, in terms of probability, you could look at binary options trading as a bit like gambling on a coin toss.

Minimising Risk

Now, having said that, binary options trading carries a high level of risk and can cause you to lose all of your funds, and it’s because of this risk that binary options strategies are so important. You can trade safely if you do your research and put effective binary options strategies in place. We’re going to help you spot the market signals that will help you to do just that.

For a start, here are your golden rules:

  • don’t invest all your capital at once
  • be aware of how your asset is moving before you invest
  • never invest more than 10% of your total equity in a placement

Reasons to Use Binary Options Strategies

Although we think binary options strategies are worthwhile, you could just as easily go with gut instinct, flip a coin or consult a horoscope to help you decide what to do. You might even be successful here and there, but long-term this is a surefire way to lose all of your capital. Probability won’t let you win with random behaviour, any more than it will let you win 50 consecutive coin tosses. To win consecutively as a trader you will need binary options strategies, and we are using the plural because you will need more than one.

Binary Options Strategies – Description and benefits

The main reason to use any trading strategy is that it will stop you from making emotional decisions. As a trader, all of your decisions need to be grounded in logic and rationality. There is very little room for hunches or luck. The other benefit of using binary options strategies is that they allow you to do active ‘field research’, meaning that if you take a defined approach to each investment and document it, and may be it fails, then you can tweak and refine it, and if it succeeds you can use it again and maybe try to improve. The markets are your laboratory where you go about testing your trading strategies, over a set number of trades and a set period of time. When you hit your time limit then you can look back and ask yourself whether your strategy is working, is it making you enough money, could it be improved etc.

Any other approach is going to leave you guessing. If you base your trades on guesswork, then you won’t know why they succeeded or why they failed. Using binary trading strategies will give you something more concrete to base your future adjustments on.

It’s important to know not just why you succeeded or failed, but why you succeeded or failed. Conducting a series of stand-alone trades with nothing to link them is as reckless as hoping for those 50 consecutive heads to come up in a coin toss marathon. When you trade, you shouldn’t just be crossing your fingers each time and being surprised by every outcome. And long term, the law of averages says that the best thing you can hope for is to break even, which is no way to make a living. It may not even be a feasible ambition because to break even you have to win more than you lose, and that seems highly unlikely without binary options strategies.

Money Management Strategies – What They Are and Why You Need One

A lot of people fall into the trap of developing a trading strategy but not a money management strategy. It’s all very well choosing what kind of asset you want to trade and how much risk you want to be exposed to, but you also need to give some thought to money management, because it will help you to build the kind of account balance that will see you through bad periods and help you sustain winning streaks.

Let’s consider the effects of having no money management strategy on someone who gambles a tenth of their balance on a single trade. If the trade doesn’t win, they now have to increase their account balance by 20% just to break even. If three trades in a row go south, then they will need a 30% jump in their account balance to get back to the breakeven point. This is a common scenario that can dig you in deep quite quickly.

Lots of losing streaks are longer than three trades, so you can see how money management strategies play an important role within binary options strategies. Without a good money management strategy, you will undermine your efforts even if you have a good trading strategy in place. Losing streaks will inevitably happen, so you must have a plan to deal with them.

Analysis and Improvement Strategies

There is no Rosetta Stone of binary trading strategies. The only constant with the markets is change, so the best traders need to adapt all the time. You could say they constantly evolve, even when they’ve become highly successful. It’s not like there’s a magic point that they get to where they know everything, and every trade they make is a winner. That day never comes. But they do get to the point where they analyse every trade deeply and thoroughly. If there’s any magic then it lies there.

By analyzing and improving your trading and money management strategies you’ll remove the parts that aren’t working, refine the parts that are and become more profitable over the long term. Even if you’re already making money, but you aren’t trying to constantly improve, who’s to say that you aren’t actually leaving profits on the table?

Types of Binary Options Strategies

There are three common elements to binary options strategies.

  • Using signals to guide you
  • Deciding how much of your funds to trade
  • Constant refinement

To create a successful strategy, you need to understand as much as you can about every aspect of it. Here’s how to do that.

Step 1 Using signals to guide you

A signal is something that tells you that the price of an asset is about to move one way or another. Asset prices move all the time of course, but what if there was something that could let you know which way it was going to move before it happened? There is, and we call this thing a signal.

Signals can be created using news events and/or technical analysis. Getting signals from news events is probably the more common one among new or inexperienced traders. Things like company announcements, industry announcements, governments releasing inflation figures, these sorts of things can all be viewed as signals that can affect prices.

If you want to develop a working strategy, then you need to think about what news events to expect and when. Most binary options trading platforms will feature economic calendars, so you’ll be informed that in a couple of days’ time a firm’s earnings reports are due. This kind of pre-warning will help to inform your analysis.

The best binary option trading platforms will also let you know what’s expected in that earnings report. This will help you to make decisions about which way the market is going to move before the report comes out.

A news-based approach to trading has the benefit of being fairly easy to learn and understand. It’s not like you need to gain secret knowledge. You’re just taking common knowledge and thinking about its implications for the asset that you’re interested in.

The disadvantage of news-based signals is that they don’t stop markets being unpredictable. For instance, if an earnings report shows that a company has boosted its profits, you might think that that’s a positive result. But that same report might suggest that profits were expected to be higher, or that the company expects to face stiff competition. There are all sorts of unknown quantities that can spook the markets and pull the rug out from under that good news.

Technical analysis gives traders a narrower view than that offered by the news. It focuses on how an asset price moved in the past, with the aim of finding patterns that may offer clues about how the price will move in future. This is an area that can become a rabbit hole of complexity—make no mistake—but the underlying principle is fairly straightforward. You try to work out future behaviour of an asset price based on its past behaviour.

So, the question is, which one of these binary trading strategies should you be using; a news approach or a technical analysis approach? Well, everyone is different, with different strengths and weaknesses, so the best advice we can give to you is to try them both and see which one works best for you. Either of them can bring you success if they gel with you.

Now, you may be wondering how much that little experiment is going to cost you. What if you’re terrible at using the analytical approach and it ends up costing you a fortune? Well, there’s no need for concern. Most decent brokers will be able to offer you a demo account to practice on. You’ll have full access to the trading platform, you won’t be using real money. You’ll get the chance to trade in binary options with zero risks. Sure, you won’t make any money with your demo account, but you won’t lose any either. Instead, you will have an ideal testbed on which to see how your strategies play out.

The last thing to say about signals and strategies is to concentrate on the short-term. Some investment strategies try to predict asset price shifts over long periods of time, even up to a decade. In binary options trading, you’re not really interested in this kind of information. You’re more concerned with what the price will do in the next two minutes, or hour or day.

Step 2 – Deciding how much of your funds to trade with

Money management strategies vary in their complexity. A simple one will have you investing the same amount for every trade, but it’s risky and doesn’t take your overall level of profitability into account or how much capital you have at your disposal. So, we only mention this because you might hear it mentioned and we want you to avoid it.

Another one that you may hear about is the Martingale money management strategy. The idea behind this approach is to recover from your losses as quickly as possible by increasing the size of your trades after each loss. For instance, you could set an amount of money that you will trade with, and if you experience a loss then you double it. If it’s successful then you aren’t just back to where you started, you’re ahead.

It shouldn’t be too hard to see that there is a problem with this strategy. Namely, if you experience a losing streak that won’t quit then the Martingale strategy would have you increasing your investment on every following trade. So, if you had a run of 11 straight losses, number 12 would be a gamble that was 2,048 times bigger than that first trade. Unless you’re a billionaire, it’s going to be hard to keep that kind of optimistic speculation going.

It all comes down to how good you are at making predictions and how good you are at ending losing streaks. You need to keep in mind that there are no certainties in binary options trading. Even surefire trades that you would stake your life on can end up losing, and losses can easily turn into streaks, even if you’re the best trader in the world because at the end of the day nobody has a crystal ball. That’s why the Martingale money management system is not for everyone. It does have its place, but it needs to be employed with caution, so it may not suit beginners.

A percentage-based system doesn’t come with as much risk, so it’s the one that the majority of traders usually prefer, especially binary options trading newbies. It’s a fairly simple concept. The amount of money you put into a trade is based on the amount of money you have in your trading account. It’s kind of the opposite of the doubling down approach that the Martingale strategy uses because after each losing trade your subsequent trades will be for lower amounts. But if you win, your following wagers will be for greater amounts, because your account balance will have gone up.

This conservative approach is designed to preserve as much of your capital as possible so that you can trade for as long as possible, and it gives you the best possible chance of clawing your way back from successive defeats and capitalizing on your successes.

The only variable for you to consider is what percentage of your balance to use. Typically, a trader who is not risk-averse will probably go for around 5%, while everyone else will probably prefer something nearer to 2%.

As an example, let’s assume you feel comfortable with 5% of your balance being invested in a trade. A $500 account balance gives you a $25 trade. If your balance dropped to $300, your trades would now be only $15. If your balance rose to $800, each trade would be $40.

With this strategy, you will only be gambling with what you can sustain. It’s a measured approach that adapts to your current situation and prevents you from throwing good money after bad when you eventually stumble into a rut of successive losing trades, and it won’t let you become overconfident if you win a few either. For these reasons, it’s one of the binary options strategies that’s hard to fault.

Step 3 – Constant refinement

Diaries aren’t just for moody teenagers. They are also essential for developing you into a better trader. It doesn’t matter whether you have a little black book or an Excel spreadsheet. Whatever works for you. The important thing is to record every trade that you make so you can build up a body of ‘evidence’. In time you’ll have a detailed history of what works and what doesn’t, and that will help to ensure that the trades you make in future are successful more often.

A diary is like a silent partner for beginning traders. It allows you to look back at trades and give yourself good advice. Try placing trades based on both technical analysis and news events signals but record them separately in your diary so you can see which one works the best for you. When you’re involved in the day-to-day business of trading, you may not realize exactly how you’re approaching it, but your diary will always tell you the truth. So, for instance, you might think that technical analysis suits you best because you’re getting twice the profits that you’re making with signals. But your diary will tell you that you’re actually spending twice as much time studying technical analysis, so it’s an unfair comparison. Maybe you’re getting greater returns per hour of invested time looking for news events signals. Only your diary can tell you.

A trading diary also delivers the kind of granular detail that is essential to fine-tuning any of your binary options strategies. This is important when you get to a decent level of competence and are only looking to improve by small amounts—icing the cake so to speak. But you can only do this if you understand the details of what you’re doing well enough to tweak them.

Don’t forget to use your trading diary to check every aspect of your trading strategy, including money management, your choice of assets, and the size of each trade.

When you get in to the detail, consider noting which days of the week are best and which times of day are best for the best results. Do you perform better with some brokers and some trading platforms? Make a note of it; it’s all-important.

Having said all that, try not to succumb to information overload. Although you’re recording everything you don’t have to change everything at the same time when you’re trying to refine your approach. If you do that it’s hard to know which aspect of the change worked. If you change broker and then asset class and then trade amount all at the same time and you have a run of successful trades, how will you know which one of those three things that you changed contributed to those successes? It is far better to change one thing at a time, then you will know that it was responsible for the change.

Binary Options Trading Strategy Examples

Let’s take a more detailed look at some binary options strategies. The ones listed below are some of the most frequently used, but there are plenty of others available as well. As you learn more, you’ll no doubt come across traders who split, combine and adapt their binary options trading strategies to suit their own goals. You’ll probably be tempted to try this kind of thing yourself, but it’s important when you start out to learn the basics and save the customized approach for later. Whichever one you choose, don’t forget to combine them with a money management strategy too.

Asset prices usually move in line with a trend. You’ll often see a zigzag of ups and downs that are actually all part of a larger upward or downward trend. When you understand the shape of the trend you begin to see that the zigzag movements can be predictable in certain situations, and when you can predict those movements you have an opportunity to execute profitable binary options trades.

To put it simply you have a couple of main options: you can gamble on the overall trend or on each of those zigzags. Trading the overall trend means looking at the big picture. You’re not interested in trying to capitalise on the minor ups and downs of an asset price. Instead, you are looking at a shift in price over the longer term.

Trading on swings in price requires that you place more trades, which is inherently riskier but potentially more rewarding.

Upward trend – New highs and new lows will usually be higher than past highs and lows in an upward trend.

Downward trend – New highs and new lows will usually be lower than past highs and lows in a downward trend.

Of course, you shouldn’t lose sight of the fact that you are free to use both approaches to trading. It’s a free country!

One of the most frequently used ways of trading trends is with High / Low options. Every binary options trading platform will offer this kind of trade. With a high option, you’re betting that the price will go up and with a low option you’re betting that the price will go down. The only variable is the period of time during which you think this will happen.

A riskier, but potentially more profitable variation of this is called a one-touch option. Instead of just betting on whether the price will go higher or lower, you’re predicting whether it will hit a specified number called the target price.

Example 2 – Trading on News Events

This is a fairly popular type of trading strategy. You will use the news as your source of intelligence. When a company reports greater profits or a new and exciting product then the theory states that generally, this will cause more people to want to own shares in that company and this demand will push up their price. The opposite is true if the company announces bad news of some sort. In both cases, binary options traders are in a position to make money if they can anticipate the direction of the next shift in the share price.

The downside of this type of approach is that it is not clear cut. When you trade on the basis of news events you place your fortune in the hands of fate.

So, it’s a good thing that there are other strategies that you can take to increase your chances of successfully trading binary options. Here are three of them.

Boundary options – when you’re certain that an asset price will change but you can’t be quite sure which way it’s going to go then a boundary option can be really useful. With it, you set two target prices, one of which is below the current price and one of which is above. The difference between them is called the price channel. If the asset price passes either of them then you win. If it only moves inside the channel then you lose.

Trading the breakout – The breakout represents a window of opportunity. It’s the time, anywhere from 30 seconds to several minutes after a piece of news about an asset goes public. It’s the perfect opportunity to use a high/low option because it’s here that traders will try to limit their losses or alter their positions for profit, and so it’s here that you’re likely to see significant fluctuations. You’ll sometimes hear breakout trading being called the 60-second option because the timeframe is literally that short.

Intelligent High / Low trades – it seems counterintuitive, but sometimes good news may result in falling prices in the markets. That’s because even though the news may appear to be good on the surface, such as a rise in manufacturing productivity, if the markets were expecting a greater rise then the news comes as a disappointment which they will then adjust for. If you can predict when such things will happen then high/low trades can help you to profit from them.

Example 3 – Using Candlestick Formations

As a new trader, you might find this strategy the most difficult to understand, but the good news is that once you do it is going to be the simplest one to put into practice and profit from.

When you look at a typical graph of an asset price then you’ll be looking at an oversimplification that features a before and after. If you want to know more (and you do) then look to candlesticks to fill in the details.

Candlesticks appear on an asset’s chart over time. The bottom of the Candlestick indicates the lowest price it reached during a particular time period and the top indicates the highest price it hit. In the middle you will also see the opening and closing price, so a candlestick gives you an easy to digest view of the price range fluctuations for that asset in that particular time period.

Now the way to use candlesticks in trading is to recognize different formations of them. Once you can do this you can better understand which way the price will go next.

For instance, if you see a candlestick with a gap then that means the asset price jumped significantly higher or lower. Gaps are unusual because prices usually move in a much more gradual fashion, hitting the majority of price points on the way. When one appears during a period of low trading volume then it’s telling you that there is likely to be a quick correction.

This can happen just before a market closes for the day when there aren’t many traders left placing trades. The gap can be produced in this situation by large trades, but that doesn’t mean that the asset is strong. Maybe the gap wouldn’t have appeared if more trading had been going on, so knowing this you can estimate the gap in the price of this asset and use that information to plan your trades.

If gaps appear when trading activity is high, but the price is not moving much then this can indicate that there may be a new breakout, or surge in that direction. Again, use this information to your advantage when you trade.

If a gap appears when trading volume is normal and there’s a trend in one direction, it might suggest that the trend is accelerating. Good intelligence to have for your next trade.

Developing a Binary Options Strategy Without Risking Money

If you’ve taken all of the advice in this article on board then you’ll no doubt be wanting to test your new binary options strategies, but you still might be reluctant to get your feet wet when you are aware of how easy it is to lose money. You don’t want to blow all the money in your trading account on testing out your theories, do you?

That’s where a binary options demo account comes in useful. Every half-decent broker will let you use their trading platform demo fashion, gambling nothing more than numbers on a screen instead of money from your account. It’s probably the best way there is to start testing (and recording in your diary, naturally) your binary options strategies, without losing your shirt.

The Strategies

One of the beauties of binary options trading is that there is virtually no limit to the kinds of assets that can trade in. Trade on those assets that are most familiar to you such as euro-dollar exchange rates. Consistently trading a single asset will help you to gain that all-important familiarity with it to help you predict changes more easily. There are two types of strategies explained below that can be of great benefit in binary options trading.

1. Trend Strategy

This is a popular strategy, and it is also called the bull-bear strategy. To implement it you’ll need to keep an eye on the rising, declining and the flat trend line of the traded asset. If you see a flat trend line and think that the asset price is about to climb, use the No Touch Option.

If the trend line shows that the asset is going to go up, choose CALL.

If the trend line shows a decline in the asset price, choose PUT.

This method works just like the CALL/PUT option but in this instance, you decide on a price that the asset mustn’t hit during the time period you specify. So, save Facebook’s share price is $490 and the trading platform says the No Touch price is $495. If it doesn’t hit $495 during the time of the trade, then you win.

2. Pinocchio strategy

Use this strategy when you expect the asset price to fall or rise dramatically. Choose ‘call’ if you think it’s going to go up or ‘put’ if you think it’s going to go down. This one is best tested on a demo account before you go live.

3. Straddle Strategy

This approach is best used when the market is volatile and when you’re expecting significant news about a particular asset to break. This is a strategy that’s much respected throughout the world of trading. It lets you avoid choosing between CALL and PUT; you put them both on the selected asset instead.

The overall plan is to use PUT when the asset’s value has gone up, but there is a suspicion that it will go down again soon. As soon as the decline starts, put the CALL option on it, because you expect it to rebound soon. You can also use this strategy in the other direction, by placing CALL on a low-priced asset and PUT on a rising asset value. This boosts your chances of success by covering you in both directions. The straddle strategy is a favourite of traders when the market or asset is tending to fluctuate.

4. Risk Reversal Strategy

This is one of the most popular binary options strategies because it’s designed to reduce the amount of risk involved with trading and boost the likelihood of securing a profitable trade. With this approach, you place CALL and PUT options on an asset at the same time. This can really help when assets are volatile.

5. Hedging Strategy

This is another one of those binary options strategies where you place both call and put positions, with strike prices that overlap. The thinking is that at least one of them will pay out. You can make more than if you just select one option, and if you lose then it will still be a lot less than the straight loss you would suffer from just one option. It’s a useful tool to add to your trading bag of tricks.

6. Fundamental Analysis

Binary options strategies almost always require that you have knowledge of the underlying assets that you are effectively gambling on. The theory with fundamental analysis is that you really go to town on understanding the business whose share movements you are interested in understanding. To do this you need to get to grips with things like their earnings reports and financial statements.

As a trader, this review helps you to understand how the company has been performing and how its stock reacts to particular market news. If you know well enough what kind of shape the company is in and what kind of events have caused its share price to fluctuate, then you’ll be much better placed to predict and therefore profit from future changes.

We hope that this guide has been useful in preparing you to take your first steps with creating your own binary options strategies.

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