Short term day trading strategies in binary options
Trading Strategies in Binary Options
The growth of binary options trading strategies can be aptly reflected by the rise of the popularity of binary options trading that has been adopted by most forex traders in the recent months. The primary reason for this sudden boost comes from the high profit potential, low deposit requirements that has given a boost to the binary options as an alternative investment tool. This popularity has risen to an extent that investors now actively seek binary options trading strategies to help them maximize their profits even further and consistently.
As with most trading strategies, binary options or the mainstream forex trading are usually developed by the investors and financial analysts in order to assist the average investor by giving them a trading advantage in the ever volatile financial markets.
Binary options trading in reality is a purely speculation driven markets and this is why it also gives rise to the potential uncertainities involved with this type of an investment. Increased risks in any investment is usually followed by a need for having and implementing a strong binary options trading strategy that has the potential to offset any unexpected developments often associated with the volatile markets that one gets to see. This is true especially during the peak trading hours where markets are known to react in the most unpredictable of ways.
Thus, the popularity of binary options when combined with the potential profits they can offer which is derived from the markets and the speculative nature, makes it a formidable investment tool. Traders and investors in general tend to bring their own tips and tricks to the table and there is no set of rules to be followed. We introduce some of the most easy to implement trading strategies in the binary options markets.
CALL or PUT Strategy – You decide!
The most simplest of trading strategies available with binary options is where an investor can choose to purchase or place either a CALL or a PUT option.
Taking an example of a binary options investor who choses to trade an amount of 100USD by placing a PUT option on a EUR/USD asset at the end-of-hour; then for example, with Tradesmarter binary options trading platform, should the EUR/USD asset end up trading the session lower than the market price, then by the end of the hour, the investor would get 850USD (which is an 85% return). There are some binary options trading platforms that do not offer any returns for losing trades, or trades that end up out of the money. However, with Tradesmarter, even if the option that was bought does ends up out-of-the-money (which is a losing trade), binary options investors are still entitled to receive a 15% return on their initial investment, which happens to be 15USD in this case.
CALL and PUT Strategy
One of the most exciting factors that comes into play with binary options trading is the volatility which brings about a certain kind of excitement to the average investor. Most traders usually set off their trades in hopes of them ending up in the money. But this isn’t entirely true. Something which every seasoned investor has experienced. So what happens in such a case when a trade was opened and a CALL option was placed but mid-way the trade is clearly ending out of the money?
Typically, this is where the story ends for most investors. Accepting that it is a losing trade and perhaps moving on. But little do most investors know that such an adverse trade can actually be utilized to place a winning trade? By opting to place a second trade in the opposite direction (a PUT option in this case), investors can purchase an option that is firstly working for them and secondly is a sure shot winning trade.
Illustrating this with an example, an investor has purchased a 100USD buy at an end-of day CALL option on the FTSE100 index at a strike price of 1.1800USD. The investor soon observes that the trade is going against what was initially speculated. The ideal way to convert this losing trade into a winning trade is by purchasing a PUT option that is of the same initial value that was invested, which in this case is another 100USD. Choosing such type of a binary options strategy where in the trades are placed in opposite directions at different intervals can help investors to minimize their losses.
Lets stretch this a bit further with two scenarios:
Scenario 1: Trader purchases a PUT option for 100USD and the trade loses.
- The investor wins back only 15USD on a losing trade.
- Invested 100USD, got back 15USD. 75USD loss
Scenario 2: Trader purchases a PUT option for 100USD and the trade is losing. The investor opens a new position with the same investment of 100USD and places a CALL option. A winning trade.
- Invested 200USD, got back 15USD on the lost trade, won 185USD on the second trade placed.
Returns: 200USD. No profit no loss.
Make winning trades work for you
In the financial jargon, this strategy is refered to as doubling your trades. Best illustrated with an example of an investor that placed a 100USD PUT option on the FTSE100 at 10.033, the investor notices that the trade is going to end in his favor, in the money. By ensuring that the first trade is trading well below the 10.033 level, the investor can place another PUT option in the same direction preferably within a short expiry time, thus doubling their chances to win from the trades. The potential to win from such a strategy is twice.. which is 85% x 2.
The advantage of implementing such a strategy is that investors can can make very high profits on trades that are surely winning trades. While this stratege seems simple in theory and reflects a great earning potential, it does however involve some good groundwork and a keen eye on various economic factors that determine the outcome of such trades.
Just because one of your trades is winning doesn’t justify the action to open another trade in the same direction, unless there are verifiable facts that will contain your trades thus doubling your profits.
For starters, when placing your second trade in the same direction, an important factor that plays a role in the outcome of this trade is the time for expiry. A worst case scenario that can be derived out of this situation being that if the first trade is due to end in the next 15 minutes and you open a second trade in the same direction, there is a potential that the markets might tend to retract within the time frame of expiry (which is typically 45 minutes) of your second trade.
Trading based on market news and events
Commonly referred to as event based market trading, this strategy is a bit more complex in comparison to the other binary options trading strategies presented in this article. The concept to pull off a winning trade is to invest in either a Call or Put Option on the basis of anticipated drastic fluctuations of prices in the markets.
For example, if you pay attention to the market or economic news that might hint at a government decision or less or more than expected results that might lower the currency value, a binary options investor could well purchase a PUT option of the currency pair, example EUR/USD. What justifies this trading decision is the conviction that the news released hints at lowering the value of the currency pair. Impelementing trades that are well timed with market events can be a profitable strategy for the binary options investor.
Unlimited potential to profit!
The trading strategies mentioned in this article form a few of the various strategies binary options investors have adopted to based on their trading experience. The key to developing or implementing a successful binary options trading strategy comes from the fact that with due attention to detail and perseverance, investors can make good profits by trading binary options.
There are inherent risks involved ofcourse during the phase of experimenting, however with trial and error and ensuring you don’t end up losing all your investment, binary options with its high payouts and fast returns and the fixed risks they pose, traders can build up a big portfolio in a short period of time.
Article Source: http://www.articlesbase.com/day-trading-articles/short-term-day-trading-strategies-in-binary-options-5082068.html
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