At the beginning of creating every trade, the binary trader has got half a chance to create a successful trade, because when we trade classic binary options we can only predict whether the price of an option will go up or down. That is however with 75-85% returns from a successful trade not enough and therefore without using any binary strategy you can never trade profitable (or at least not in the long run). These strategies can significantly help us to increase our win ratio, however, you should also know in advance that in addition to your initial investment to the broker you will also need to invest your time. Many websites might trick you just into creating an account at some broker without any previous knowledge of the binary strategies whatsoever and that is a huge mistake. So in case you don’t have the time or you are not willing to learn the market, you probably shouldn’t start trading at all. But now let’s get back to the binary strategies, we have 2 types of strategies which we sometimes also call analysis. The first one is called technical analysis and the second one is called the fundamental analysis. Some strategies might also encounter with combinations of both.
Technical analysis or the analysis of graphs is engaged in forecasting changes in prices according to a repetitive pattern (formula). In an attempt of finding these patterns, we use different kinds of indicators and oscillators (such as the stochastic indicator, the MACD, the RSI and many more). Some brokers offer within their platform system for complete technical analysis (For example IQ Option offers an extensive charting system). But in case you seek for a free service which focuses just on technical analysis then we recommend you using either the FreeStockCharts or the MetaTrader 4. Here is an example of MT4 with a 5-minute chart.
The second type of analysis is the fundamental analysis. This method focuses exclusively on economic statistics and economic changes which will most likely affect the value of options. When we look at some large scale examples, then we most certainly have to talk about the global crisis in 2008, in which investors had a great chance to invest on a drop of public securities of major companies, banks and investment funds etc. On a smaller scale, hundreds of economic indicators are daily published (eg. unemployment in the country, inflation, etc.). All of these economic changes are recorded in the economic calendar in which you can find: the impact of the news, time of their release, and the direction in which the price will most likely move. There are hundreds of economic calendars which are available on the Internet. One is even offered by broker 24Option in their academy, the calendar is located in the top menu under the education category.
With what capital should I trade binary options?
The first two types of strategies mentioned above are designed to predict the price, the following strategy is, however, a question of a correct money management. When you fully adherence your money management strategy you will be able to get the absolute maximum from your capital, so don’t take this type of strategy on a lightweight. Generally speaking, it is not recommended to invest in one trade more than 4% of your total capital. Money management is very often overlooked, however, its importance is exactly the same as using any other strategy that will help you predict the price, sometimes even bigger.
Take an example, when you open an account with a broker that offers you to make a trade from $ 10 and you deposit to your account the minimum deposit of $ 100. In that case, once you make your first trade you invest 10% of your entire account funds, that is an enormous part of your whole trading wealth. So theoretically you have money to open only 10 trades. Of course all of those trades would have to end up out-of-the-money and that is highly unlikely, but still, even if just a few of them were unsuccessful (especially the first trades), you would get yourself into a big psychological pressure. Subsequently, you begin to doubt every trade and you will most likely slip from your initial binary strategy, which might result in further losses.
Testing binary strategies
Trading with real funds without a tested binary strategy is very risky. Therefore it is very important for every trader to be properly prepared before entering the real market. One of the ways in doing so is to use a demo account for binary options. This practice account works exactly the same like the real one, with one huge difference, that you are trading with imaginary funds. In order to accurately test your binary strategy on the real market, the demo version is probably the best solution whatsoever. Once you open a demo account try to strictly follow your strategy as you would with the real funds.
The second option, how you can test binary strategies is to open, for example, MetaTrader 4 and at any time you would on a real account opened a trade you make a note either to Excel or on a paper. Then you wait if the price of the option moves in the direction you chose and you write down the result of each and every one of your trades. This way you will try to “create” as many trades as possible and then you calculate the overall success of your strategy.