Trading binary options or trading options is very different from trading stocks because options have different characteristics from stocks. So, what is binary options trading?
It is important for investors to spend time understanding the terms and concepts associated with options before trading them.
When trading binary options, investors are involved with options. Options are financial derivatives. So, the management of binary options trading will have to do with the underlying securities or stocks. This is because options derive their value from these financial assets.
Options give the buyer the right, but not the obligation, to buy (call options) or sell (put options) the underlying stock at a predetermined price. This price is known as the strike price of the option.
How to Increase Binary Options Trading Success
1. Choosing the Highest Paying — Why It Matters
Most binary options traders focus on trading the assets they know well. While not wrong, the payout can be very costly.
For example, if a trader’s favorite currency pair for binary options trading is EUR/USD and one day the broker lowers the payout ratio to 70%, while another currency pair offers 90% or more, the trader should not trade their favorite pair and more. choose pairs with higher payouts assuming the charts are acceptable. More will be discussed below.
For more about payments and why they’re so important, let’s look at an example below. Trader A trades assets with 70% profitability while Trader B trades assets with 100% profitability.
After making 10 trades worth $100 each, both of them made a profit of 6 times out of 10 trades. In the end, Trader A made $20 profit while Trader B earned $200.
Trader B made ten times more profit than Trader A simply because of the payout ratio!
If they continued for a week, Trader A would have made $100 profit while Trader B had made $1,000. The difference will be large if this continues longer, assuming they win 6 out of 10 trades each day.
2. Searching for an Acceptable Market Structure
In general, market structure describes market conditions such as trending, consolidating, or flat. Perhaps people believe that it should not be trading in a market with irregular charts, large and frequent price gaps, and visible waves without any understandable direction or clear structure. Is that true?
It sounds reasonable, but in reality it is not. Many traders are ego driven to be able to leverage such assets either to prove to themselves or out of a reluctance to seek better markets.
Binary Options Trading – 5 Ways to Increase Success
First, the asset chart must be able to convince you to take action, giving rise to the feeling that you can anticipate what will happen and profit.
If it doesn’t evoke those feelings, even bringing on feelings of disorientation, look for other assets.
Set up the charts so you can scan the charts quickly to find assets that move big and suit your indicators and support/resistance strategy.
This will help determine the approximate direction easily. Avoid assets with no visible direction that doesn’t follow support/resistance levels or patterns and indicators that will eventually drain your account and your patience.
3. A Closer Look to Understand Binary Options Trading
If a trader is trading binary options on a 5 minute candle chart with a 15 minute expiration, that means he or she expects to guess the correct direction for 2 to 3 candle charts before expiration.
While candle charts reveal a lot of information about what’s going on in the market, sometimes it’s just not enough.
For example, if a closer look at the 1-minute candle chart shows a bullish pattern forming, but the 5-minute candle chart shows only odd candlestick patterns with no clues of directional movement, a closer look provides the ability to see clues that might otherwise have been missed.
As a general rule, a trader focused on a certain asset on a certain time frame eg 5 minute candle chart, will get more information if in parallel he opens the same chart in a shorter time frame eg 1 minute chart.
4. Looking Away for Support & Resistance
On the other hand, assuming the trader still wants to trade the 5-minute candlestick chart, looking further at a longer timeframe such as the 15-minute chart will reveal the bigger picture.
I often make unsuccessful trades missing the fact that the price is forming a consolidation pattern on the longer timeframe or has touched a line of support or resistance that only appears on the longer timeframe chart.
Longer timeframes can reveal the big picture and are the place to identify support and resistance levels, as well as patterns such as wedges, triangles, canals and more.
As a general rule, a trader who focuses on a particular asset over a certain time frame, for example a 5-minute candle chart, will get more information if he or she also opens the same chart with a longer timeframe, for example a 15-minute chart.
If it’s too difficult, trades should be started on the 15-minute charts for analysis purposes then trades are made on the 5-minute charts.
5. Using Rejection Candlestick Patterns at Support & Resistance Levels
Candlestick chart patterns in binary options trading can make the difference between winning and losing — making it perfect.
Even if a trader has chosen a market that is acceptable to common sense and uses long and short timeframes to better understand the market, identify support & resistance levels and other patterns correctly, the final trigger should always depend on the candlestick chart pattern.
For example, a trader chooses a bullish trending market that is in a correction mode and the price is headed down to the next correctly identified support level using a longer timeframe.
He was ready to buy an option with a 15-minute expiration when the price touched the support level, hoping that the price would bounce off the support level and not go any lower. But how to find out?
The answer is the reaction of the candle chart pattern on that support. For example, if at a support level the price reacts with a hammer candlestick chart (which is the best candlestick chart reversal pattern) on a downtrend, it is likely to lead to success.
In the opposite scenario, if a bearish suffocating candlestick chart pattern starts to form when the price reacts to the support level, the trader will understand that the price is most likely heading downwards and that the support level will be broken. Thus, losing trades can be quickly avoided.
Have you used any of these tips in trading binary options? Share your tips with other traders in the comments below!