Technique is important in any activity, whether it be wealth-building or sports. In trading binary options, having a mastery of your chosen technique is quintessential to success. And when we say success, it’s not the occasional win or two that nets you $100. Long-term success in trading binary options means being able to extract consistent gains while maintaining healthy levels of risk.
Why Adopt Techniques?
Trading binary options is just that – a Yes or a No. It doesn’t give you any other option unless of course to stay in the sidelines if you don’t like the unfolding price action. But beneath the simplicity of the business lies a hidden layer of psychological complexity. Like gambling, trading tends to bring out the worst in people. They become greedy and fearful for their money. They make decisions based on these two emotions. While they may get a trade right every now and then, in the long run, capital losses are absolute. With a clearly defined and understood set of techniques, you are guided by logic rather than by emotion.
Trending Market Technique
Perfect for total beginners, trading a trending market is a simple yet powerful technique. Traders use higher time frames like 4-hour, Daily, and Weekly charts to identify the general direction of price. And because binary options can be used for any underlying asset like stocks and forex, the choices for markets to trade are virtually limitless. You must have certain criteria in place, however, to narrow down a healthy trend from volatile and unreliable ones. For instance, how many days has price been trending upwards or downwards, what fundamental data is fueling this move, and how many major resistance and support levels has it broken?
Ranged Market Technique
80 percent of the time, markets are ranging. You won’t see bulls or bears controlling price for a significant period of time. Such dynamic is simply unhealthy. Ranges are more common during the intermediate time frames like 1-hour, 4-hour and Daily. With ranged markets, you open a Put option when price is hovering around a strong resistance level. A Call option is opened if price is hitting a support level and you strongly believe that it will bounce upwards. Because price is ranging most of the time, there’s a handful of tradable setups a ranged trader can take. Be careful to enter ranged trades where there is a clearly dominant side.
Thanks to a Japanese rice trader named Munehisa Homma, candlestick charts were born in the 18th century. Candlesticks are relatively better at conveying price action than bar and line charts. They offer more data while taking the same amount of screen space. Candlestick patterns have been formed to give traders signals when to buy low or sell high. For example, a morning star candlestick can be used to denote a transfer of control to the bulls. Meanwhile, a bearish engulfing candlestick pattern, as the name implies, signals an impending reversal downwards. There are more candlestick patterns out there you can learn and master, such as three line strike, two black gaps, three black crows, hammers, dragonfly and tombstone dojis, etc.
Well-constructed trading platforms like UltraTrade offer a handful of technical indicators that can signal reversals or continuations in price action. For instance, a pair of moving averages can signal when price will bounce off a resistance level or continue towards its original direction. Other indicators like Stochastics and Average True Range is attached at the bottom of your display screen and moves accordingly with the price of the asset you attached it to. A downside with using an indicator-based trading technique is that most indicators are lagging, meaning price would’ve already moved a significant amount before it could generate a reliable signal to enter.
Watching business news is never an exciting hobby, albeit can provide reliable signals for trading binary options. To effectively use the technique, identify the factors that move your underlying asset price. Trading forex options, for example, should be limited to economic press releases concerning interest rate changes, central bank policy changes, huge misses in unemployment and employment rates of a country, and so on. Stocks, on the other hand, can be traded with a news-based technique when the company releases news that either compromise its solvency or help to grow the brand. When trading news, price volatility usually increases. It’s best to wait for the actual news to be released and then trade based on the market’s reaction rather than trade beforehand with your personal expectations on how the market will react.
These five techniques are not for everyone. Try to use all of them first and discard techniques that do not align with your investment goals. Avoid solely trading based on the technique/s you are using. As you gain experience, accounting for your gut instinct will also help you make more accurate predictions in any market environment you pursue.