Binary Options Strategy Guide
When taking your first steps into the binary options market, trading with a strategy is always recommended. A structured, well-thought-out plan gives you the best chance of success. And whilst it’s true that there’s no such thing as a zero risk or risk-free, 100% profitable strategy, impulse trading with no plan increases the potential for losses. Arguably, the shrewdest investors research the best binary options strategy for them personally to invest in and take time to understand how they work.
Unsurprisingly, traders seeking a win may become overwhelmed when having to choose from over 100 binary options strategies – many have unusual-sounding names; there’s even a bandit strategy, would you believe? Some have a duration of seconds, others can be hourly. It isn’t as easy as saying there’s one killer binary options strategy that really works for everyone; a foolproof, mathematical, never-lose strategy with a 90 or 100 (percent) win rate, that makes you a millionaire overnight. Just imagine…
Importantly, it is worth considering the latest technical analysis and fundamental factors. You can also look online to download strategies for free. Here, we consider some of the most notable strategies available and highlight which may be best for different types of investors, from beginners to experts, short-term or long-term traders and more.
Binary Options Brokers for United States
Binary Options Strategy Basics
Binary options operate in a similar way to betting in that the returns on each trade are like fixed odds. With almost all binary options, there are only two possible outcomes; yes (the trade expires in the money) or no (the trade expires out of the money). When the trader has bet correctly and is in the money, they receive a payout from the broker (less the cost of the option) that was agreed before entering the binary options contract. When the trade doesn’t expire in the money, the broker keeps the premium paid by the investor.
Payout odds offered by brokerages can vary and often they are not particularly lucrative (circa 70% of the option premium). This is because the broker needs to hedge their position by not offering odds that would break the bank if the trade expires in the money.
For example: if a trader bets $20, that bitcoin could be trading above $40,000 in an hour. The broker might offer a payout of 60% as bitcoin is already trading at $38,500 and today’s price data indicates its quite likely to increase. If, 1 hour later, bitcoin is trading at $40,010, the trader receives $32 ($20 initial investment + $12 payout). If bitcoin were to be trading at anything less than $40,000 at the time of expiry then the investor would lose their $20.
This example demonstrates the potential opportunity binary options offer as a trading strategy; however, a consistent high win rate is required when the payout percentage is low. Employing a solid strategy is a way of trying to straight forwardly mitigate the risk of losing money when binary options trading. The chances of winning and being successful when trading this particular asset class are improved when traders plan their move well and understand the information available before entering the market. As well as reducing losses, adopting a structured and researched binary options strategy can also significantly improve the trading experience.
Volume is particularly relevant to binary options traders. It can help you identify profitable trading opportunities and avoid bad ones. The volume defines how many units of an asset changed hands during a period.
Another useful tool for some is a binary options strategy tester on MT4. By incorporating binary options trading into the MT4 / MT5 online trading platforms, that connects retail investors to the financial markets, traders can now automate their strategies and so remove emotion from investment decisions.
Binary Options Strategies
There are lots of different binary options strategies traders can employ, depending on their style, risk appetite and level of expertise. Binary options trading is generally considered to be a form of betting and there are no binary options techniques that will provide a 100% win rate. Therefore, it’s important to find a binary options strategy that really works for you and understanding how they work is key.
Let’s explore some of the key strategies…
Using Binary Options For Hedging
Binary options can be utilized as a strategy for hedging. As the outcomes are fixed with a yes or no, traders can offset other investments in their portfolio by hedging opposite movements. The best binary options hedging techniques will be thought out and attempt to keep portfolios profitable. Here is a high-level example of a hedging strategy in action:
A trader has bought 10 BP shares at $20 per share and it is currently trading at the same price. The trader has a long hedging strategy with BP and expects the price to increase in the coming days – however, there is a risk the price could fall. To hedge this risk the trader buys 10 put options at $10 per share which costs an option premium of $5 per option. Each option has a payout of $10 and is due to expire in a day.
Let’s look at the potential outcomes, depending on how the position has been hedged…
Trading With No Binary Options Hedge
- The price increases to $40 – The trader makes a profit of $200 (10 shares at $40, less initial investment of $200)
- The price decreases to $10 – The trader makes a loss of $100 (10 shares at $10, less initial investment of $200)
Trading With A Binary Options Hedge
- The price increases to $40 – The trader makes a profit of $100 (10 shares at $40 less initial investment of $200, less the $100 in binary options contracts)
- The price decreases to $10 – The trader makes a loss of $50 (10 shares at $100 less initial investment of $200 plus the $50 profit in binary options)
In this example, although the gains are lower than without the binary options hedge, the losses are also halved, demonstrating the value of the hedge. The payout is also significantly higher than the odds typically offered and therefore this trade might not be worthy of executing for the trader.
There is no ultimate strategy which will guarantee 100% success when trading binary options, however, implementing an element of hedging into your strategy could be a very good policy and will limit losses.
Short Term Binary Options Strategies
Binary Options 60-Second Strategy
One of the best strategies for trading binary options is the 60 seconds (or a minute) technique. In general, it is the binary options strategy that works best with newbie traders and beginners due to its simplicity. It is also popular with most day and swing traders as it can be deployed multiple times in a day. The concept of this binary options strategy is monitoring technical indicators such as support and resistance lines to predict where the price of an asset will be in 1 minute.
All traders using this methodology should integrate strong risk management as trading in such a short time frame with many trades a day can increase the risk of loss. Some binary options brokers may offer a 2 and 3 minute strategy choice as well as a 5 minute expiry alternative.
Binary Options 1 Hour Strategy
For traders looking for regular trading longer than a 5 minute expiry, the one hour binary options strategy is a strong choice. Here traders can follow the same methodology as the 60 second strategy but trade hourly. This binary options strategy is also popular with beginners as it’s straightforward and trades are concluded in 1 hour.
Again, it is best to integrate a robust risk management plan with the 1 and 4 hour binary options strategy as traders could be entering the market several times a day and managing losses before they become material is key.
Binary Options Arbitrage Strategy
The arbitrage trading strategy is quick and straightforward but requires a significant amount of capital. The concept of the strategy is centered around buying the same binary options which are priced differently in different markets. In a number of seconds, the trader is looking to buy one set of an asset, sell another set at a different price and profit from the difference.
Binary options price differences tend to be marginal so trading in high volume is the most effective way to maximize gains, however this will require traders to invest significant capital when using this strategy. Furthermore, since binary options aren’t integrated into all markets the chances of finding the same contract listed at different prices across multiple markets is low.
Longer Term Binary Options Strategies
End of Day Strategy
An end of day binary options strategy is one of the more straightforward strategies to grasp. The concept is a swing trading strategy as it entails following the trend price of an asset till the end of a trading day and entering a binary option contract ready for the opening of the market the next day.
This daily binary options strategy can be heavily influenced by market news, where changes in trends are likely. It is therefore recommended that the analysis for this strategy is best done in correlation or combo with analysis for any news related trading strategy.
Best Binary Options Strategies For Beginners
Binary Options Double Up Strategy
The double up (also known as martingale) strategy is exactly what it says on the tin, it doubles the position of the binary option. It is a very simple, but risky methodology. Typically, brokers will only offer a “double-up” well in advance of the expiry date when the outcome of the trade is still relatively unclear.
This way of binary options trading is also similar to the compounding strategy where traders should increase their position by using profits from previous wins to maximize positions. With all of these strategies, profits can be doubled but so too can losses so it is important for any new traders to not invest more than they can afford and thoroughly research any asset they plan to invest in.
Binary Options Straddle Strategy
A binary options straddle is when a trader holds an equal number of puts and calls (a call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock). In this case, they have the same expiry price and dates and this can be done in either a long or short position (long positions in a stock portfolio refer to stocks that have been bought and are owned, whereas short positions are those that are owed, but not owned).
Buying both puts and calls ensures that the trader will receive a profit regardless of which way the market moves. The trick is to ensure the payout will cover the cost of entering a conflicting position. Whilst this binary options strategy is straightforward significant funds are required to cover both eventualities so new traders must have sufficient capital to invest.
Moving Average Crossover Strategy
It could be argued that the most straightforward binary options strategy which involves using a moving averages indicator is the crossover strategy. Here traders deploy a “slow” (long term) and “fast” (short term) moving average and when the two lines cross the trader enters the market. When the short-term line crosses the long term line the trader buys, when the long term crosses the short term, the trader sells.
Binary options traders need to assess how long they expect the new trend to last and set their expiry terms accordingly. Investors can deploy the Exponential Moving Average (EMA) crossover strategy (where exponential moving averages are used – EMA applies weight to data that is more current.) Multiple EMAs used on the same graph are called the rainbow strategy.
Breakout Strategy
Binary options trading using the breakout strategy isn’t the easiest to understand but all traders can benefit from learning how to accurately read and trade with candlesticks (candlestick charts are used by traders to determine possible price movement based on past patterns. They show four price points – open, close, high, and low – throughout the period of time the trader specifies.)
This trend line strategy involves traders identifying support and resistance lines which are the value in which the price of an asset is troughing and peaking respectively. Once the support and resistance lines are set, traders monitor the price chart to spot a breakout where either of the levels are breached. When a breakout is confirmed, the trader should enter the market. For example, if the resistance line is broken a trader should buy a call option as the price of an asset is expected to rise.
Binary Options Strategies For Experienced Traders
There are several strategies that make use of complex mathematical technical indicators when trading binary options. Typically, these are used by seasoned traders. Here are the most popular:
Alligator Strategy
The binary options alligator strategy methodology assumes at any moment the market is moving up or down 15% to 30% of the time and the rest of the time the movements are sideways. The alligator indicator demonstrates where there are periods of high volatility and therefore when to enter and exit the market.
There are 3 simple moving averages (SMA) indicators used in the alligator strategy, the jaw (a 13 period SMA, moved into the future by 8 bars), the teeth (an 8 period SMA, moved into the future by 5 bars) and the lips (a 5 period SMA, moved into the future by 3 bars).
When the market is flat and stable, the 3 lines will move together however in periods of increased volatility the lines will begin to separate demonstrating the potential for entry. When the line begins to close together again, this could be an indication to exit the trade.
Currently, the alligator binary options strategy is only available with IQ Option. This methodology can also be used in tandem with the fractal strategy (fractals are indicators on candlestick charts that identify reversal points in the market).
ADX Strategy
Another trading strategy used with binary options on IQ Options is the ADX strategy. The ADX measures the strength of the trend and can be used to judge whether or not an asset is trending. The ADX is an average of the +DI and –DI where the former demonstrates the strength of buying in the market and the latter strength of selling in the market. When the +DI crosses the –DI this is a good indication to buy, when the –DI crosses the +DI line then this may indicate it’s time to sell.
Bollinger Strategy
Periods of volatility tend to be attractive times to enter the market as traders can capitalize on price swings if they are caught early. The binary options Bollinger strategy does just that by pinpointing times of low market volatility and then alerts traders when the market begins to move.
The Bollinger bands also provide subsequent signals when the bands are widening or closing as this demonstrates a change in price trend. This strategy is fast-paced and requires regular monitoring by traders to ensure they are ready to enter into a binary contract when the indication of movement comes.
CCI Strategy
The binary options commodity channel indicator (CCI) strategy is an oscillator that studies the price pattern trends of an asset and alerts when there is a likely trend reversal. This is determined by measuring the relationship between the price of an asset and the moving averages, which identify if an asset could be overbought or oversold. High values of the indicator suggest that the price is unusually high and low values suggest the price is low. This information can be used by traders to enter a binary options contract and make a move.
This strategy can be used with the binary options divergence strategy where the chart line is trending one way and the line on the CCI indicator is already trending another way, then there is a high chance that the trend will move or reverse.
The MACD Strategy
The Moving Average Convergence/Divergence (MACD) indicator is a momentum oscillator primarily used to trade trends. MACD is a straightforward indicator to use in your strategy and can provide insights into which direction the price may move, how solid that movement is and when or if a price reversal might occur. The MACD strategy involves using this indicator with binary options as well as other asset classes, to gauge momentum and spot a price reversal.
The RSI Strategy
Trading binary options with the relative strength index (RSI) is a popular strategy because it’s easy to implement and follow. The RSI demonstrates a value between 0 to 100 and calculates the difference between the opening and closing prices of varying periods.
For example, if a trader is looking at binary options over 14 periods and in all of which the prices were rising, then the RSI would show as 100. If the 14 periods all had falling prices, then the RSI would show as 0. Traders can use this indicator value to determine when to enter into a binary options contract and the price and expiry of that contact.
This indicator can also be used with the stochastic strategy, which generates buy and sell signals. The signals can be used to create a dedicated long or short strategy, as well as a long-short strategy.
The Renko Scalping Strategy
The binary options Renko scalping strategy focuses on price action rather than considering the time or volume of trades. This methodology is easy to understand as it strips away all other information so that traders are focused on price-only charts. These charts are simple but effective – the prices shown on the charts are the closing price and the box size is dependent on the range of price movement. These indicators should provide sufficient information when choosing which binary options contracts to enter.
Other Strategies
Binary Options Strangle Strategy
A strangle is a direction neutral strategy implemented by options traders when they are expecting market volatility. It involves buying out-of-the-money contracts and selling in-the-money contracts as the trader hopes to buy low and sell high or sell high and buy back low.
Binary Options Price Action Strategy
For binary options traders, price action is the only viable technique to predict future market movements. Binary options are short-term investments whose ability to make 10 or more trades a day is the reason for their unmatched earning potential.
Binary Options Correlation Strategy
The key to correlation trading is being able to predict when future realized correlation amongst the stocks of a particular index will be greater or less than the “implied” correlation level derived from derivatives on the index and its single stocks. It is a strategy in which the investor gets exposure to the average correlation of an index.
Binary Options Compounding Strategy
Compounding in binary options is executed to make more profit while keeping risk at the same level. It is both rigid and flexible at the same time. It is rigid in that a set percentage for investment will be used again and again, without wavering. It is flexible in that the trader is allowed to select the percentage that they feel comfortable with. The compounding method is used by many traders simply because it is reliable and eliminates emotion-based investment decision making.
Binary Options Momentum Strategy
The momentum is an important indicator of the speed with which the price of an asset moves. For binary options traders, it can be both a great way to find trading opportunities and a helpful tool to pick the right binary options type for the current market environment. The momentum is a technical indicator that compares where the price of an asset is now to a price in the past.
Binary Options News Trading Strategy
News trading is based on a simple idea: In reaction to events about an asset, the market often develops strong movements. Events traders want to anticipate these movements and invest in a binary option based on the predictions they allow.
Binary Options Trend Following Strategy
This strategy requires you to look at charts and recognize trends or a pattern. Whether the line you follow is uptrend or downtrend doesn’t matter, but you need to be able to spot them. Once you’ve established that there is a trend, you make a trade in the same direction.
Steps To Start Binary Options Trading With A Strategy
Choose a Broker
There are many different binary options brokers available to choose from. Some investors may be signed up with a broker already. If not, there are some key factors to consider:
Charts, Platforms & Indicators Available
In some of the strategies considered, there are specific tools, line charts and indicators required to successfully execute them. Traders should be able to find out if brokers offer certain additional trading features by consulting the broker’s website before signing up.
The platform available is also a key consideration, when trying out a new binary options strategy it is beneficial to use demo accounts as a tester before risking real money. Some brokers will provide trials on platforms such as MT4 and MT5.
Payment Methods
Ideally, brokers should offer payment methods which have minimal fees or charges and fast transaction times while, of course, being safe. Nowadays the standard payment methods offered are most major debit and credit cards however there are usually alternative payment methods available such as PayPal, Bitcoin, Skrill and many others.
Available Assets and Hours
A key consideration when choosing a broker is what type of asset classes are offered in their binary options contracts. Before choosing your binary options strategy, traders should check which instruments are available to trade as some may be trading exclusively in forex or shares, for example.
Traders wishing to deploy a binary options weekend strategy, which allows trading seven days a week, will need brokers who offer cryptocurrencies as few other assets are accessible outside of traditional market hours.
Other Features
There are several additional features that traders using a binary options strategy should consider when choosing a broker. Tutorials, videos and tips from forums can offer investors a significant advantage when plotting a move and entering the market. Some online brokers may even offer to download a binary options strategy for free once you have signed up.
Fund Your Account
Once you have selected your broker, funding your account is the next stage. Ensuring that there are sufficient funds in your account is critical so there is no delay when you want to enter the market. It would be wise to calculate how much deposit is required depending on the value and volume of the binary options contracts you plan to trade.
Choose a Strategy
As demonstrated, there are lots of different strategies to choose from when trading binary options. The best winning strategy is the one that works for you, depending on what timeframes you trade in, level of experience, risk appetite and many other factors.
There is no such thing as a no loss, never lose, zero risk binary options strategy – if only! However, loss can be reduced by understanding your trading methodology well.
Enter a Market
Once you have chosen your binary options strategy and funded your account, you should be ready to enter the market and buy or sell some binary options. Double check that the details of the contract align with your expectations and pay particular attention to the contract type, expiry price and date.
Bottom Line on Binary Options Trading Strategies
With each day, comes a new binary options strategy, it seems. Keeping up with the latest methodologies daily is a big task. This style of trading continues to grow through 2024 and we have covered most of the key strategies currently available. So ask yourself, ‘Which strategy works best for me?”
As aforementioned, low risk strategies, where you almost never lose, are a nice idea but not really a reality. Regardless of which approach you choose, it is no secret that trading with a binary options strategy increases the chances of profits and potentially reduces the risk of losses.
FAQ
What Are Binary Options?
Simply put, binary options are contracts with fixed outcomes, either yes or no. The trader enters a contract with the broker that an asset’s price will move in one direction or another at an agreed expiry time and date. This movement is typically to reach – or fall to – a certain price but there are other contract types available. If the trader has forecast correctly, then they will receive a payout from the broker as well as their deposit back. This process is automatic.
What Is A Binary Options Strategy?
A binary options strategy is following a plan or methodology to determine when and at what price to enter a binary options contract. Traders deploying an investing strategy should use the range of information, charts and indicators available to maximize the chances of winning
Which Are The Best Binary Options Brokers?
There are several brokers who offer binary options contracts on a range of different asset classes such as forex, shares, cryptocurrency, commodities and others. If traders are wanting to use specific indicators in their strategy they should check that the broker has these available too. Some of the big names in binary options brokers are Pocket Option, IQ Option, Deriv and Quotex.
Are Binary Options Good To Invest In?
Despite the relatively low payouts of around 70%, binary options can be a good asset to trade to diversify your portfolio or, if it suits you best, to use for hedging other trades. The fixed odds element of binary options also means that trades are either in the money or out of the money at the time of expiration so there is no requirement to constantly check the outcomes.
Is Binary Options Trading Risk Free?
No, trading this asset is not the ‘holy grail’ of risk-free trading. Just like all other assets, binary options do carry risk. However, with a well thought out and researched strategy, the chances of returns are higher. As with all trading, a minimum requirement for investing is to have a solid risk management plan so that losses are limited and controlled.