Binary options in their current form appeared in 2008. The economic crisis that erupted at that time led to the emergence of many new financial instruments that increase the capabilities of traders.
The principle of binary options ("all or nothing") is misleading in its apparent simplicity. As in the Forex market, it requires a deep knowledge of technical analysis and the ability to use trading strategies.
Timeframe options dependency
Beginner traders, driven by the desire for easy money, prefer the shortest expiration time. Work on small time frames (less than 5 minutes) is comparable to a game of chance, the win in which is completely dependent on luck. All effective binary options trading strategies have an expiration time of 5 minutes or more. The higher the time frame is taken for technical analysis, the higher the probability of working out the transaction in favor of the trader.
Not all BO brokers provide trading platforms for complete technical analysis. More often, the terminal is a kind of price chart, on which it is difficult to conduct any research. To make the right decision, you need to choose a broker with a full-fledged trading platform or analyze it using third-party tools, for example, use terminals designed for Forex trading.
How to choose the expiration time
When choosing a trading strategy for binary options, two circumstances must be taken into account: the timeframe on which the decision is made, and how comfortable it is for the trader to hold the position for a long time.
Although the expiration time is selected empirically, there is a general rule. It consists in the fact that the timeframe on which the signal is received is multiplied by 3 or 4 times, that is, if the signal was received on a 5-minute chart, then the expiration time should be taken equal to 15 - 20 minutes. Accordingly, if a trader works on an hourly chart, then expiration is assumed to be 4 hours.
The older the timeframe, the stronger the signal. However, the percentage of profit laid down by the broker for this expiration may be lower.
Turbo Options
The fastest earnings and the most unreliable using the M1 timeframe. On the minute chart there is a lot of market noise, as well as various false movements. Despite the understanding of where the price is heading in a global perspective, the mentioned false movements in the opposite direction appear on the M1 timeframe. However, there are working strategies for binary options for 60 seconds.
Trading on M1
To work, you need a minute schedule. On it you need to install the moving average (EMA), constructed by the exponential method with a period of 28. EMA should be created at the closing prices of the candles.
In the basement of the chart you need to configure the ADX indicator. Signal lines D + and D- are not needed. If the terminal allows, then you need to uncheck them. If the trading platform does not provide such an opportunity, then you can specify their color (the same as the background). Then they will not be visible. In addition, you need to add a signal level of 20.
This binary options trading strategy works as follows:
- For the Put option, the moving average should be above the candlestick chart (or break through the EMA candlestick from top to bottom).
- The ADX line must be below level 20 or touch it.
- If a breakout bearish candle occurs, the Put or Down option opens with an expiration of 60 seconds.
For a good strategy development, additional conditions must be met:
- A breakout candle should have a large body devoid of shadows (it is possible that they be minimal).
- The candle should break through the local level.
- Entrance to the transaction should occur on the next candle (its color is the same as the previous one).
This was considered an entry for the Put option. For Call, the opposite conditions are true, with the exception of the ADX indicator. Its line in both cases should be near or below level 20.
Strategies for the M5 timeframe
The following strategy for binary options for 5 minutes is quite simple and suitable for beginners, as it contains a minimum of conditions.
To implement it, you only need the Bollinger Bands indicator and a pin bar. Bollinger is available in any trading terminal, and a pin-bar is a candle with a small body and an abnormally long tail.
To open a deal, you need to find a pin bar that has an intersection with one of the external Bollinger lines. This is a signal. The further the tail goes beyond the corridor formed by the indicator, the better. A long shadow indicates that the price has been rejected.
After the pin bar closes, a deal opens on the next candle. The expiration time is selected equal to 10 - 15 minutes.
In this strategy, it doesn't matter what color the pin bar is. What matters is the length of its tail and how far it goes beyond the indicator line.
This method can be used when trading both in the trend and in the sideways, because the pin bar pattern is a reversal pattern. Bollinger lines limit the trading corridor. The appearance of a reversal model on one of them signals a change in the balance between bulls and bears. The only disadvantage of this method is that a similar pattern occurs rather rarely.
Rollback entry on a 15 minute chart
The next great trading strategy for binary options is based on the very classic of technical analysis - trend movements and pullbacks.
For analysis, two timeframes are used: hourly and 15-minute. A trend line is being built on H1. M15 is needed in order to find reversal patterns on rollback movements. Mostly used pin bars and absorption models. The essence of this binary options trend strategy comes down to the following:
- After the trend is found on the hourly chart, you need to wait for the rollback.
- It needs to be fixed on the M15. It begins at the moment when local extremes cease to update their highs or lows.
- Then you need to draw a counter trend.
- When prices approach the counter-trend line, you need to look for reversal patterns. A rebound can also be considered as a signal for a transaction that opens in the direction opposite to the direction of the trend.
Entrance takes place on rolling candles, and the expiration time is taken equal to 45-60 minutes.
Time frame work 1 hour
Trading strategies of professional binary options traders are often based on higher time frames, since the price of them has a large amplitude of movement.
In 2014, a forecasting method called Price Action appeared. He incorporated various graphical models of price behavior. BO traders also use these models in their work. One strategy for working on an hourly chart is called Box.
In its formation involved a setup called the "Inside Bar" (Inside Bar). This pattern occurs when the momentum pushing the price decreases. This creates a slight balance between the bulls and bears. Then, in the range of a large pulsed candle, one or more others are formed, whose bodies are smaller. Their shadows should not go beyond the mother candle.
Punching the price range formed by the high and low mother candlesticks will be a signal to enter the deal. The expiration time is 1 hour.
This strategy also works well on the H4 timeframe. In this case, expiration is taken equal to four hours.
Binary Options Divergence Trading Strategy
Classic indicators often help in binary options trading. They are embedded in the strategy in the same way as in classical trading. One of the methods of working with indicators is the detection of divergence (discrepancy).
For this, the MACD and the RSI are more commonly used. At that moment, when the candlestick chart and the indicator line show the discrepancy between the tops or bottoms, a signal appears to enter the trade.
Divergence means that the strength of the trend movement has decreased, a reversal is possible. To finally make sure that the trend is changing, an additional factor is needed. It can be a moving average or trend (counter-trend line). You need to open a deal on the breakdown line.
This binary options trading strategy works well on the M5, M15 charts. The expiration time is set to be a multiple of three relative to the timeframe size.
Economic forces
Trading on the Forex news carries both a good opportunity to earn money and great risks. Traders' expectations are often not met, and the price goes in the opposite direction from the forecast.
Binary options news strategies have several different approaches. Often, at the time of publication of events, the price on the expectation of market participants moves towards the forecast. Therefore, at the time of exit, you can open a deal in this direction with expiration for 3 minutes.
The next approach is to break through the price corridor. A few hours before the release of strong news, Forex calms down. Price begins to move in a narrow corridor. Break of borders will be a signal for opening a deal in this direction. Here, expiration is set to 1 hour.
The third option is the following approach. At the time of the news release, there is a strong price impulse that lasts about an hour and a half. Then the price begins to walk in a narrow range for 30 - 240 minutes. A price rebound from the external borders of this corridor is a signal for opening a deal. For Put option - hang up from the upper border, for Call - from the lower one. Expiration is taken in the region of 15 minutes. But it should be remembered that a breakthrough of the sidewall can occur at any time.
How to trade options after strong trend movements
Often, at the time of news release, the price makes big movements - from 100 to 200 points. Each currency pair has its own volatility, beyond which gives reason to expect a pullback. If, at the end of the American session, after a strong movement, a breakdown of the trend line occurs and extremes cease to be updated, this is a signal to open a transaction towards a pullback. The deal can be opened with expiration for 6-10 hours, that is, before the start of the European session.
However, you need to consider that there are currencies that go to the Asian session, that is, at night. This is the Japanese yen, the New Zealand dollar. Such pairs are not suitable for this strategy.