Binary Options Trading Strategy


Binary-Options-Trading-SystemIn this post we’re going to take what we learned in the last post about binary trading signals and use them to build a profitable binary options trading strategy.

Before we start we’ll cover the basics of what every strategy needs. The whole point of a strategy is to help you trade without emotion and to give you some structural entry and exit points.

So a good strategy needs to include proper money management, provide valid entry and exit points as well as a stop loss for losing trades, all of these things should be decided before you make a trade. Trading on the fly is sure to end in disaster especially when you’re just starting out.

This is a simple strategy that’s perfect for beginners to learn the ropes. So first things first we need to know the levels of resistance for the day. We’re going to do this by using an old favorite the Bollinger band.

Named after John Bollinger and not after the amount of Champagne you can buy with your profits. The Bollinger band is a reliable indicator used by trading professionals and gives a useful trading range for the day.

For this strategy I’m going to recommend you trade the S&P500 as its a little less volatile than other markets but still liquid enough to create significant trends throughout the day. When you get more experience you can use this strategy on other more volatile markets like Forex.

So open up your charting program, change the default pattern to candlesticks and set the time frame to 1hr intervals. Now set the Bollinger band to a 20 day moving average, this will give you an average range over the previous 20 days trading.

You will quickly see that 90% of the time the price remains within this band, what we’re looking for is a price breakout above or below.

When the price breaks through these lines of resistance one of two things will happen. The price will either go on a run and create a new high or low for the day or more likely the price will reverse and head in the opposite direction. Both these situations are opportunities for profit.

But how are you going to distinguish which is which? Well you could trade a reversal every time the price breaks through the top of the band, place a put trade meaning you think the price will fall and place a call trade when the price breaks through the bottom of the band, meaning you think the price will rise.

That’s fine but you’ll get a lot of false readings trading this way and you won’t be able to spot when the price is about to go on a run. So it’s going to be much more profitable to look out for one of the binary options signals you learned in the previous post.

When you combine one of these signals near the top or bottom of the Bollinger band you have a powerful signal which is much more likely to result in a profitable trade because you’ll have a good idea where the price is headed.

 

Trading-Strategy

Take a look at the chart above and you’ll see how the price bounces around between the two Bollinger bands. If you placed a trade every time the price broke through the top or bottom band you would have made 11 trades and been right 50% of the time.

As you already know losing 50% of your trades would mean an overall loss, but what if you only traded when you saw one of the binary option signals appear? Then you would have only traded 7 times, and you would have been right for 5 of those trades, meaning a 70% success rate.

 

Trading-Strategy

The particular example above is an intraday trading system which means you would have to be monitoring the market once every hour. You could easily adapt this system to a daily system by setting the chart to daily intervals and trading daily binaries instead of hourly ones.

This will result in considerably less trades maybe only one or two a week but it’s a good way to start if you have a full time job without access to the internet. You can always move on to more liquid markets like EUR/USD once you have gained enough experience spotting the various signals.

One final thing I would say is don’t try to take on too many markets at once, concentrate on one or two markets and become expert at trading them. Trying to monitor 5 or 6 markets at once is sure to end in disaster especially when you’re just starting out.

If you want to try this strategy out open an account at EZTrader, where you’ll find all the tools you need to implement it.



Brokers that I use



Copyright 2008 - 2011 - howtotradestocks.org - All Rights Reserved

Discount Stock Brokers | Compare Online Brokers | Penny Stock Brokers | Sitemap | Privacy/Affiliate