Published by Sebastian Preiss on April 13, 2016

What is the right strategy?

Finding the right strategy is essential to your success as a binary options trader. Which strategy is right for you depends on your experience level. While new traders should use a strategy that is easy to execute and can minimize rookie mistakes, more experienced traders can use their knowledge to employ more refined strategies. Being able to know which type of strategy is ideal for you is one of the most important steps on your way to success.

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What is the right strategy for new traders?

New traders need a strategy that allows them to find trading signals easily and securely. For this purpose, three types of strategies stick out:

1. Trading simple candlestick formations

Simple candlestick formations are probably the easiest way to unlock the market’s secrets. A candlestick is a way to display price movements that aggregates all market data of an adjustable time period in one candlestick. This technique allows you to extract only the information you need from the market, while simultaneously eliminating all distractions.

Every single candlestick allows you deep insights into what happened during this period and what will likely happen next. Simple candlestick formations are the most significant candlesticks, and by understanding just a few simple candlestick formations such as the big candle or the doji, you can already find trading opportunities in almost any trading environment.

Generally, simple candlestick formations create short term predictions that are only valid for the next candlestick. In a chart where one candlestick aggregates 30 minutes of market movements, for example, your expiry for high / low options should always be less than 30 minutes. For one touch options, you should use the longest expiry that gives you a target price within the predicted movement.

2. Trading technical indicators

Technical indicators are one of the simplest ways to find trading opportunities. By aggregating past market data and displaying it in a way that allows you to draw easy predictions about future market movements from it, technical indicators offer even completely new traders a chance to trade binary options successfully.

The most popular ways to create signals with technical indicators are trading moving average swings and convergences / divergences in momentum indicators. This article will not explain these strategies in detail, but you can find the explanations in other articles on our site.

Trading technical indicators requires you to have a software or website that can generate and display these indicators. Some binary brokers offer you a trading software that can manage technical indicators, and there are free and paid websites. Meta Trader offers a free alternative that you can download and install on your computer.

1 quick tip

Do not overestimate your knowledge. When it comes to evaluating yourself it is better to underestimate yourself than to overestimate yourself. The worst thing any trader can do is attempting to do what they can’t do. It will always result in failure and lost money. Therefore, if in doubt, choose the easier strategy.

What is the right binary strategy for experienced traders?

While experienced traders can do well with the strategies we looked at so far, they can also take things a little further. By employing more complex strategies, experienced traders can find more trading opportunities and can make more money.

Trading complex candlestick formations

Complex candlestick formations consist of more than one candlestick. While some complex candlestick formations consist of 2 to 5 candlesticks, larger candlestick formations such as continuation and reversal patterns can consist of 50 or more candlesticks.

For traders of binary options, complex candlestick formations of 2 to 5 candlesticks allow short term predictions that are ideal to trade an option with an expiry equal to the time aggregated in one candlestick. Each formation allows for one trade.

With large complex candlestick formations such as reversal and continuation patterns, every single formation can offer you 10 or more trading opportunities. You will find less of these formations, but a single formation will offer you much more trading opportunities.

To make the most of complex candlestick formations, we suggest you read up on candlestick formations with 2 to 5 candlesticks and on continuation and reversal patterns and pick the type of formation that suits you best.

Trading trends
When the market moves up and down, it never moves in straight lines. Instead, the market forms little zigzag movement that are called trends. Each trend consists of a starting point and consecutively increasing highs and lows (in an uptrend) or consecutively decreasing lows and highs (in a downtrend).

Understanding trends will provide you with an almost endless reservoir of profitable trading opportunities. You can trade each trend as a whole with high / low options or touch options, or profit from each swing from high to low with a high / low option or a touch option.

Whether you choose to follow trends as a whole or trade each swing independently, understanding trends will catapult your trading to a much higher level.

1 quick tip
Each strategy has its unique psychological challenges. You should pick the strategy that matches your personality best. When trading complex candlestick formations, for example, focusing on formations with 2 candlesticks will generate plenty of trading opportunities, but include more risk. Focusing on formations with 5 candlesticks, on the other hand, will create less opportunities but also less risk.

In similar ways, all strategies include similar tradeoffs. As a rule of thumb, remember that price formations based on more candlesticks can generally create more accurate predictions than price formations based on fewer candlesticks, but you will find more opportunities to trade formations based on fewer candlesticks.

In this tradeoff, minimizing risk is not always better. It can be more profitable to win 65 percent of 10 daily trades than to win 75 percent of 2 daily trades.

The most important factor is that the strategy includes enough risk for you to net get bored and less risk than it would take for you to get nervous. You should always be in your emotional comfort zone.

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