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Types of Trading Strategies
There are several types of options trading strategies, but sadly most of the ones offered online lack in depth or consistency, and therefore cannot provide any continuity in gains. Since binary option trading is extremely speculative and risky, the strategies to be used in this type of investment have to be molded to this volatility. Here are the main types of strategies on which you should focus:
- Risk management
- Algorithmic trading
- Probability Axioms
- Quantitative analysis
When you divide your trading methods into these categories, you will be able to orderly develop a consistent investment system. Although developing such a structure demands patience and some financial and mathematical knowledge, it increases your chances of success dramatically.
Risk Management for binary trading
The high risk factor in binary options is caused by the percentage difference between an in-the-money and out-of-the-money trade. Since a trader earns in average 80% on a correct prediction, and loses in average 95% for a failed prediction, a 50% accuracy in trades will lead to the eventual loss of the entire investment. To overcome the difference between the losing vs. payouts percentages, traders must be successful in 55% of their trades, at least. Since the basic odds favor the loss column, binary options are by definition very risky. The failure to explain this to customers is a main cause for the scam allegations against Cedar Finance and similar brokers. Risk management strategies involve calculations that identify and assess the level of risk of an investment strategy or a single event. In what is known as the composite risk index, the impact of risk and the probability of an occurrence are given values from 1 to 5. Another reason risk management is a key factor in binary options strategies is that it enables you to be bold without being reckless. Higher risk also translates into higher gains when the risk-taking is successful. Knowing how to choose a potentially hazardous but highly profitable trade is better than using a hunch.
Risk Management tutorials
Certain binary brokers help traders by providing educational tools that teach you how to avoid unnecessary risk and trade safely. Although most tutorials on this topic contain very basic explanations, it is worth looking into them. More importantly, the fact that these companies provide such information and assistance is proof to their professional and serious approach. Although they do not provide online all the intricate mathematical calculations you should slowly acquire to become a better trader, these brokers also have investment consultants that can assist you with your strategies and methods. To begin your options strategy training, we suggest the 1-on-1 programs offered by Banc de Binary, OptionBit. Click in the banners below to obtain more information, and open an account with a binary company that can actually improve your profit making.
Banc de Binary, considered to have the best ecourse on the market, also offers the highest payouts in binary options with 91% per trade. This experienced broker sponsors the Premier League Liverpool club and is the fastest growing binary options corporations, and its success is a direct result of the excellent customer service they offer you. Enjoy their 100% cash bonus:
StockPair is the most reliable US based broker , with an excellent 1-on-1 training program, high yields and a generous cash bonus. Traders praise the learning techniques and results they achieve with the help og Global Option’s team of professional advisers:
TradeRush has the largest video library of the binary market, giving you more than 80 free trading videos to learn from. With their large welcome bonus and variety of intercative learning tools, TradeRush is another broker which teaches you how to avoid risk and maximize profits:
Algorithmic trading in binary options
Algorithmic trading is commonly known as signals in the binary options field. Binary options signals are a means of automated trading in which a software program either makes the trades for you, or, in most cases, suggests real-time investment opportunities. Although most signals offered by in the binary field are either lacking or an outright scam, some mechanisms can help you learn how to create your own trading strategy. OptionBit offer a free signals tool for their clients that allow you to try a different trading technique. Traders have reported an improvement in their results and profitability when using this broker’s free program.
Understanding Probability Axioms
Gathering knowledge about financial markets and the behaviors of stocks, currencies or indices can certainly help your trading experience. But ultimately, binary options trading is based on very short term predictions. It is not truly possible to elaborate a prognosis for the outcome of an asset’s fluctuation when expiry times are 15 minutes away. What the financial and economical data can do for you, when trading options, is enable you to choose certain assets over others, because their trends are clearer or easier to predict. Yet to be able to work with a trading strategy that will improve the accuracy of your predictions, and hence increase your profits, you need to focus on the statistics of probabilities. For example, if you have had 4 successive out-of-the money trades, the chances of a correct prediction on your 5th trade have increased substantially. How much more should you therefore invest on this 5th trade? This is the type of information that probability axioms will give you. To use axioms you have to be able to tackle some math. It might seem daunting at first, but it’s just a matter of understanding the formula, and knowing which numbers to put into it. This video of the University of California can be useful, and you can focus on the example called: The probability distribution of a single trial, since it focuses on an event where there can be failure or success. Basically, the same structure as your binary options trades.
Binary Options Analysis
The most basic aspect to keep in mind when molding an options’ strategy, is that there is no actual trading in the binary market. You do not buy and sell you positions, but rather acquire the option which you wish to make a prediction on, and follow it to expiry. A simple definition of quantitative analysis would be: the use of math in trading techniques. This might seem as the most obvious thing possible, but oddly enough, it wasn’t until the early 70′s that the concept of using mathematical formulas in investments was established. It was only after Robert Merton’s stochastic calculus study and the Black-Scholes model were introduced, that quantitative finance began to become widespread. Perhaps these big names and complicated words scare you, but they shouldn’t. Stochastic processes study systems that behave randomly. Binary options most certainly are a type of investment in which results are random, and therefore, building a strategy that takes that aleatory quality in consideration, can help you succeed. As for the ways of building a quantitative analysis of your binary options trading, look into sites such as that of day-trading wiz Oddmund Grotte. There you will find many ideas and information that can help you understand how to keep track of the numbers a trading platform provides. By tracking your traders and results correctly, you will be able to slowly perceive nuances that can be translated into effective strategies. Remember that a solid strategic technique focuses on consistency, objectivity and verifiability.
Binary Option Trading Strategy – Summary
- True investment strategy is built on numbers
- Although the math can be daunting, using formulas will help
- Start by keeping track of the trades you make and having access to your trading data
- Then, use quantitative analysis to better understand what your numbers can teach you
- Remember, binary options trading is speculative and therefore probability axioms are effective
- The simple nature of binary trading, with just two possible outcomes per trade, turns this type of strategy into a very effective one
- Remember the high risk and learn fund-protection strategies and risk management
- Choose brokers willing to assist you in creating trading strategies and protecting your funds