Binary options trading strategy is probably the most attention seeking topic in this Industry. Recently, speculating with Binary Options market has become, somewhat, a very popular thing, especially for people who are searching for diversity in their investment portfolios.
The reasons for this trending popularity lies in the minimum entry level requirement, and in its trading execution simplicity. So, for the hordes of newcomers that flock to this “easy-money” opportunity the first question to be asked, other than: “What is the best binary options trading strategy?” is: “Is it even legal…”
Is Binary Options Trading Legal?
Almost in all countries Binary Options are legal, however, not in all countries they are regulated! There is a big difference between illegal and unregulated. In some countries, it is a Legal requirement for a binary broker to have a license along with other country specific credentials. With others, it is merely a matter of county registration as a limited liability company, and you are good to go.
Hence, when dealing with binary options brokers it is essential to know what regulation, if any, and the legal status the house actually has. This could vary based upon country-location, as well as its jurisdiction.
The majority of binary trading restrictions relate to the Investment limitation outside the country you reside in. Basically, some countries restrict the amount of capital their citizens can transfer overseas. Consequently, placing funds with a binary broker is considered as an overseas bank transfer.
Certain countries have greatly restricted the Binary companies to have an easy-access to their clients in order to shield their citizens from an inherited risk associated with these type of instruments.
There are governments that even are blocking these type of sites if they do not properly state the nature of their business.
For example, if such site is to be licensed in the U.S; then it would have to be registered with the CFTC and follow the rules of online gambling. Therefore, in the U.S. the only Binary broker that is allowed by the CFTC to accept North American clientele is – NADEX.
We’ll be covering more about this broker, later on in the post, so stick with us and read on! Indeed, there are plenty of other brokerages outside the US that may still do business with Americans, then again, the risks are high and fall on the trader’s shoulders.
Trading with Binary Options for the average retail trader essentially began in 2008, when the U.S. Securities and Exchange Commission’s approved these type of Investment vehicles. Since then this type of trading has gained an immense popularity, for the reasons discussed, below.
Yes, one can argue and say that in fact, binary options have existed many years prior, but these instruments were available only to Institutions and large accredited speculators through the OTC (Over The Counter) market.
Simply put Options, by itself, are financial instruments, the derivative Investment vehicles, to be exact, which allows you to speculate in online markets. Dealing with binary options, simply means an option trading where we have two potential outcomes.
It’s been said, the difference between Forex is that binary options are simpler and trading involves lesser risk with higher payouts. However, in reality it is quite the opposite, you have lesser payouts as opposed to winning returns.
How does binary option trading work?
A speculator buys an option contract, then at the expiration of the holding period, if the option is in profit, it produces more or less 80-85 % return on the Investment. In case when the contract is not profitable, the speculator loses the whole sum of the invested money.
That is not to say, you can’t make money with them, it’s just there are few nuances one needs to be fully aware before jumping on the binary option bandwagon.
Binary options are generally easy to trade, even for unskilled investors. Also, trading with these financial instruments involves a minor starting capital, normally, no more than a few hundred bucks.
The simplicity comes from the selection mechanism; you have to be right on direction for the chosen time period. Basically, you only have to be right with the two features – direction and time.
After the chosen from you expiry time ends, if the current price is above (for the CALL) or below (for the PUT) your entry price, the trade is considered as a winning (IN THE MONEY) and you get the payout.
Binary option, which is a derivative, could be traded on any financial instrument: stocks, commodities, currencies, indices, metals etc. Most commonly used binary option forms are: fixed-return, or high-low contracts.
Can you make a lot of money trading binary options?
Well, this is not such a simple question. Of course, we have people that make money with them, and we also have the ones that lose, and I mean lose, royally. The first most important step you should take, when trading binary options, is to find a trusted Broker!
Let’s face it, even if you have binary options trading strategy that allows you to profit in the market, what good would it be if you’re unable to withdraw your money from the account?
There are so many binary options scam brokers out there, you won’t believe it until you’ve read some horror stories from the fellow traders that have been scammed around the world.
Typically, scam-my brokers have demo accounts, which are provided for free, that are out of this world. The order execution and the overall speed are so good, you simply never loose in demo accounts.
However, once you switch to a real one, then all the funny stuff starts to happen; slow order execution, re-quotes, the different price entry that may vary significantly from your original one, and many other dirty tricks that these brokers have in their arsenal.
Remember, in the live account, you are working with slower signals, and also many trades could be rejected until you get the price that is far from with what you’ve planned on getting in.
The trading platforms are manipulated from their back-offices, and they have nothing to do with real- time markets. Also, they are very skillful and verbally trained in keeping you from trading anywhere else.
They offer you fat bonuses on your deposits, and have all sorts of excuses just to keep you trapped in their domain.
So, going back to our question: “Can you make a lot of money trading binary options?” The simple answer is – NO, unless you have a Broker that will not do the things we’ve mentioned above.
In essence, this should be a twofold answer; you have to have a trusted broker, and you have to have a profitable binary options trading strategy.
A battle tested strategy, with good odds and with more, or less decent consistency. Hence, if you put these two pieces of the puzzle together; the trusted Broker, and the time tested trading strategy, only then we can talk about making some sort of money with trading binary options.
Hopefully, after reading this post you’ll be able to trade with the trusted and regulated Broker, and have a consistent binary options trading strategy to profit with. Actually, this is the primary mission of this post, to align you with the proper broker and with the strategies that work.
How do you successfully trade binary options?
Even though with so many things that play against you, when trading binaries, there are still plenty of people that make money by working smart and by following the rules of their system. The main takeaway with the binary options is, risk control.
Since a trader can never lose more than the original amount invested, on any given trade, then everything boils down to controlling the risk.
Statistically speaking, a speculator has a 50 percent chance of being profitable on any trade, whether with a going long (call), or a going short (put) contract. Binary options work with the same laws of probability as any other event that has two possible outcomes.
Therefore, in order to break even you would need to be right with other half of the time. You only would need to be right on the other 50 percent. Sounds about right, isn’t it? However, this the wrong assumption, because your winnings in binaries are capped. You win always less than your initial investment.
Let’s take a 100 trade sample and assume that you’re going to bet 50 dollars on every bet. What will happen is the following:
If you are wrong on your bets half of the time you would lose 50 x 50 = 2500. And if you are right 50 percent of time, then you would win 50 x 40(50 times 80% of the return is 40) = 2000. The 80 – 85% return is probably the best there is in the Industry. Mathematically, even with 95% profit margin you would still lose: 50 x 47.5 (50 times 95% is 47.50) = 2375.
Therefore, in order to make money trader needs to find an edge with his binary options trading strategy. Which means, to be right on more than 50 percent of the time. Depending on the profit margin that broker is willing to provide, one would need to maintain 60-70% win ratio. Meaning, you would need to be correct on your trades 60-70 percent for any given time period.
To conclude, the whole game is structured in favor of the brokerage house. But this doesn’t mean, you can’t make money with the binary options.
You just have to know your odds, have a profitable binary options trading strategy, and deal with an honest broker.
Bottom line, you would have to beat the law of averages, win about 65% every time in order to make any kind of returns in the long run.
What is the best binary options trading strategy?
Before we single out any particular strategy, first lets talk about what kind of strategies are available to the retail traders. Below is the short list of the strategies that have gained popularity since the binary trading inception:
News based strategies – (Momentum driven)
Technical Analysis strategies – (Pattern driven)
Time Based strategies – (Data driven)
We are going to discuss all of them, however right from the get-go we are admitting, our favorite strategy is…Time-Based. OK, let’s get to it and unveil cons and pros for all of them.
News based strategies:
Usually, this type of trading is a short-term speculation, which is heavily driven by Momentum that is generated from the news events. News driven trading, is probably the most common approach for newcomers, because of its simplicity in preparation and execution.
Essentially, it requires focusing on what is happening around the news, such as fundamental releases provided by a company or a country. Announcements made by a government officials about the state of the Economy or the Industry; any changes, new developments, agreements, political and social changes etc.
There is a whole bouquet of things that may influence changes in the price of an asset. Many times positive news makes the price to increase (calls), while negative news creates opposite reaction, to decrease (puts).
The basic requirements of this binary options trading strategy are, to know what news to pay attention to, and when to expect it. Most binary brokers supply you with the economic calendar so, knowing ahead of time what to trade and when, is not a problem.
For example, if you trade binaries on currency pairs, then Non-farm payrolls on the U.S. dollar is the biggest news event for that purpose. It happens on the first Friday beginning of every month. Knowing this, you can prepare yourself in advance for the event and trade it with no hassle.
However, the most important aspect of this type of speculating is to know what the market reaction would be if certain numbers or particular info is released. Yes, it is helpful to know in advance that a company’s earnings are coming out, let’s say, in a week.
That way you can make a directional play by predicting the outcome, but it is a lot more beneficial if you knew what the market expects from that report.
Unfortunately, it is not always this black and white. Meaning, it is not always like this, the price moves up on a positive news and moves down on a negative. There are hidden market dynamics that make it hard to predict which way the asset is to follow after the release.
For example, in currencies, an agency releases a major economic report showing an increase in consumer spending, which is very good for the economy. Numbers are really high, it is indeed, a positive news, you would expect the market to react positively.
Nonetheless, the revised numbers for the previous period showed a huge discrepancy between the actual numbers. This alone was enough, to negate the current positive numbers and cause the market to sell off.
The market might recover later on, but this was enough to cause the damage in the short-term. This means, the markets may fall, even though the current event was labeled as positive. In the currency market this happens all the time. Additionally, it is challenging to predict for how long a movement will continue and how far will it go.
Pros.
It is easy to follow and implement, because of the news events, especially with the news calendar.
Easy to learn, because there are only a handful of news that really move the markets.
Cons.
Unpredictability. Too many variables that could influence the outcome.
Technical Analysis strategies:
Speculating based on technical analysis provides a viable alternative to news driven strategies. Mainly, with binaries, it is a common approach to use price patterns for the directional plays.
This type of strategy attempts to forecast the movement of an asset price irrespective of what is taking place in the wider market.
The strategy requires focusing on how the price of a selected asset moved in the past. By processing this information it is possible to single out technical chart patterns, such as: triangles, pennants, flags, channels, engulfing patterns, which can be used to predict future price changes.
To simplify, this approach determines the current conditions of an asset and identifies if the price should remain mainly the same or if it will most likely rise/fall based on past performance.
For example, let’s say, you have spotted a triangle pattern, on H-1 (hourly timeframe), which in fact appeared to be a bullish one, because it came from a solid double bottom along with a strong bullish impulsive move-up.
Hence, we have a triangle that sits on the top of the bullish move-up. Since the bullish triangle is a continuation pattern, meaning it will continue the up-move, you’ve decided to go for a long play. You’ve decided to opt-in for the Call option.
Now, the only thing left, is to decide the time period of the contract.
Don’t get us wrong, there is much more to this strategy. Nevertheless, the general concept remains the same; making trading decisions on future outcomes that are founded on technical chart patterns.
The general problem with the chart patterns is that, sometimes, during the pattern formation, you are going to see what you wanted to see. You are going to finish the pattern in your mind, while the actual pattern will be a completely different thing by the time it’s finished.
For the “fast handed” traders this could be a big problem, since the whole trade direction will be selected wrong. Basically, there will be times when you are going to see things that are not there on the chart.
Pros.
Statistical advantage (some predictability) that comes from the technical patterns.
Improved odds, because of the inherited statistics that come with the patterns.
Structured approach to the market; no emotions are involved during the trade selection, you know what to look for.
Cons.
Takes time to learn the patterns.
Takes time to identify the patterns on the chart.
The mind can, and will play some tricks on the trader.
Time Based strategies:
This is a membership to the Binary Signal club, where Steve has trading signals for different assets. The signals are generated in the membership area from traders that pass Steve’s rigorous test before even considering releasing them to the members.
Of course, the membership is not free, it had costed him money to put it together, yet alone to maintain it. However, added bonuses that come with the membership put the whole system to another level.
For what it’s worth, hypothetically, you could sign-up just to get the free systems, because you are going to get them every month.* Then, if you don’t like the membership, for some reason, you could always quit and keep the free systems to yourself, for life. These so-called free systems are not some bogus bait-you-in systems.
These are solid trading strategies that have worked in the past, because of the record, and will continue to work in the future.** They come with clear-cut instructions on when, and exactly how to execute the trades.
I’ve personally dealt with Steve’s “bonus” systems since 2010. Well, back in those days they were not bonus at all, you had to pay for those. I remember waiting every month for the FOMC data to be released so, I could trade it through my broker. The ‘End Of The Week Dow System’ is as solid, as it gets; an 80-83% success rate is pretty impressive.
Now, one thing to mention, these are not get-rich-quick, and work-all-the-time trading strategies, rather than solid, methodical, slow-growing trading systems.
Here is Steve’s overview of the product:
Pros.
Provides signals on different asset classes.
You are not limited in trade selection.
More time to do other things you enjoy. You know the exact time and day, when to pull a trigger.
No more guessing on what asset to trade, and what direction to trade.
No software installation is needed.
Signals can be traded on MT4 platform as well.
Cons.
The timely trades might be an issue for someone that works, is busy, or unavailable to take trades at a specific time slot.
* With each month you continue with the Lazy Binary Option Signals Service you will get at least one of Steve’s Simple Trading Systems – 5 in total.
** In any market where a potential for profit exists, there exists also a risk of loss. None of the information provided by davematias.com owners, or the author of this publication, by any means assures that the reader/client will make money.
Now, to address the big question: – “Should I take advantage of a news driven approach to binary trading, a technical analysis approach, or use a straightforward time-based Technics?”
This comes right down to a variety of things, such as, what type of a trader you are: a long-term, a short-term, or a scalper. Another factor to consider, are you a left-brain (analytical) type, or a right-brain (creative) type of a trader. Therefore, the answer is totally different for everybody.
The most effective recommendation is to try all of them, to find the one that you’re most comfortable with and the one that adds the most profits to your bottom line.
Also read, Currency Market Exchange: The Things You Should Know Before Considering Forex Currency Trading.
Why Use Binary Options Signals?
Why would anyone entrust their capital to the binary options market’s tips provided by another trader, or a trading robot? For one thing, trading the markets is not an easy thing to accomplish.
If you strive to be a successful speculator, you must spend some time on this activity. You’ve got to implement technical/fundamental analysis, come up with profitable binary options trading strategy, create the set of trading rules on every trade taken.
Such actions can be very time consuming and in our busy world, most people don’t have the time to stare at the charts for six, eight, or ten hours per day. That’s why some people prefer to use option services; Signals or Robots to help them.
Simply removing half of the work, which needs to be done in order to produce high probability trading signals.
Lot’s of research effort is required as well, and this only works if you know what to look for. For a newbie, this is practically an impossible task, since experience is necessary to make the right trading calls.
And for the experienced trader, the effort and the time demands can be quite discouraging.
Therefore, to skip the steep learning curve and the time demands required to find the right trades, speculators can use binary options signals. The signal provider does all the legwork, including and ensuring that the signals they are generating are profitable.
This is a grand convenience, many people can appreciate when facing the binary options trading.
What To Pay Attention, When Subscribing To Binary Signals
Just because someone has gone through the trouble of creating binary signals it does not guarantee financial rewards on your part. You have to pick your signal providers carefully. Here are some things a careful signal service evaluation entails:
The Winning Rate
This is the most important aspect to consider when choosing a binary option signal provider. The payouts for the most binary options trades are below 100%, which means you need to win much more than half of all your trades still to break-even.
Like we’ve already explained, on average, you have to win more than 55% of your trades to see positive returns from your trading. Therefore, look for signal providers with win rates of, say 62% and above. Still, when someone starts promising 95% and 100% win rate, ignore them, nobody is that good.
How Long has the Signal Service been Operational?
It’s been said: “The things in a short run, might not be the same in a long run.” Meaning, any trade has a potential to be profitable, even the one that is based on a crappy strategy. However, with the time a truly strong strategy will stay the test of time and prove to be profitable.
Hence, make sure that the signals you are part of have been up quite for a while, and have managed to remain profitable over the time.
How the Signals are Generated?
Here is another very logical question to ask when using the signal providers. Despite the fact that you are not trading using your own trading setups, it’s still good to know how the provider comes up with them.
In this case you’ll have an idea whether the signals are even worth taking. Many signal providers that speak of some “secret-sauce strategies” that they are unable to explain, are best to be avoided.
Is Using Binary Options Signals The Same As Having A Managed Account?
The simple answer to this question is, NO. Using binary options signals is not like having someone to manage your account.
With managed accounts, you give up all account decisions to the person that is managing the account.
This person makes all the speculative decisions regarding the account. However, when using a signal provider, major decisions are still yours. You can choose what percentage of your account to risk, and when to stop using the signals on your account among other things.
Why Not Trade Automatically Through Binary Option Robots?
Using binary option robots is obviously the most convenient method to receive signals because your intervention is not required. The signals don’t have to come to you first before they can be executed on your account.
The signals move directly from the provider and get executed automatically on your trading account by an algorithm.
Basically, all that is needed is an occasional oversight over the signal provider’s performance so that you can decide whether, or not to maintain your subscription. You might think, this is awesome! Why not everybody is doing it, it sounds so tech-y and so easy…
Well, most binary robots outright don’t work! In other instances when they do work over the short period, they kind of force you to sign up with unregulated-scammy brokers, because they have partner relationships with them.
Essentially, this means you have a good chance of never being able to get hold of your money.
What Brokers To Use When Trading The Binary Options?
NADEX:
North American Derivatives Exchange – NADEX is the most trusted, and most importantly, regulated by CFTC binary trading U.S. broker. Trading on NADEX is different from speculating anywhere else in the world, because of its transparent structure. Each option contract has a price and an expiry, where the option worth zero, or a hundred, creating a binary profit/loss outcome.
With NADEX, the trader is not required to wait for the expiry time, instead one can sell the contract in order to limit the loss.
For example, if you purchase an option at 75 and it starts to deteriorate to 50, you can get rid of the contract by selling it without waiting for a total loss at the expiration time. This is the main difference, holding the option contract until the expiration with NADEX isn’t necessary.
You can open an account with them for 250 bucks, have no trading minimums. However, you have got to have the capital to cover the max risk on each trade.
Here is the list of all countries that can trade through NADEX:
https://www.nadex.com/why-nadex/account-types
Frequently Asked Questions, check here:
https://www.nadex.com/learning-center/faq
In Conclusion:
Speculating in this particular marketplace with any degree of success depends on choosing a binary option trading strategy that is in line with your trading style. To individuals whom have no experience of the binary options markets, but still would like to feel what it’s like to make money, binary options signals may be a viable solution.
The same goes for the ones that for different reasons lack, the time or the patience to analyze the charts in order to find solid trading opportunities.
Nevertheless, it is a certainty you have to be very cautious when selecting the signal provider to avoid getting burned. As you may have understood by now, not every signal service is capable of generating positive returns.
Even though, we’ve outlined some really good suggestions to help you choose the best signal service, the whole process would still require some researching effort on your part.
On the other hand, trading binary options effectively isn’t just about having the right binary options trading strategy. For example, if you’re unable to manage your emotions you will sooner, or later make costly mistakes.
Accepting the fact that losses are indeed an unavoidable part of this business should force you to enhance the money management part of your trading, as well.
In our opinion, the best way to speculate this market is through proper education, or at least selecting a recommended signal provider by the someone you know, or trust. You need to do a thorough research as the whole Industry is untrustworthy!
You have more unreliable brokers and products than reputable ones, so proceed carefully and try not shed your trading capital.
