Although relatively simpler than Vanilla options, to profit from using binary options from an uncertain financial market, a trader will still need to undertake a binary option trading strategy to help him make the correct market determination. In this chapter, we will cover some of the basic strategies which binary options which binary options traders can employ to help them with their investment decisions.
Minimizing Losses and Maximizing Gains
One successful binary options trading strategy used by traders involve the use of both a “Call” and “Put” option on a traded underlying asset. The aim is to maximize profits and minimize losses at the same time. Nevertheless, certain market conditions must be fulfilled before one can apply this strategy.
For example, let us assume that you purchase a one day call option for an underlying asset with a strike price of $50.00. Let us further assume that after a few hours the underlying asset price had increased to $51.50. This would mean that your investment is presently in the money.
All things considered, such an increase is a good upward tick for just a few hours (a 3% jump). At this point of time, you might want to consider buying a put option to lock in your profits. This maneuver is to protect you in the event the underlying asset price will drop or level off at this point.
You have to invest in the same amount of put option as you did for your call options. By doing so, you double your profits if the underlying asset price continue to rise.
And if the price drops below $51.50, you would have minimized your loss as your put option expires in the money to offset the amount that you lost on the call option. The same strategy is also applicable for a downward trend market.
TOOLS OR INDICATORS FOR BINARY OPTION TRADING STRATEGY:
Support And Resistance Lines
Support and resistance lines are one of the most helpful tools for binary options traders for discerning whether the market is on a downward trend or upward trend.
Technical indicators in binary options trading
Technical indicators are useful in helping to predict the fluctuations in the market for the short term period as they are widely adopted by traders all over the world. They actually help to create the momentum in the market because everybody is the market are buying into the market based on these technical indicators. Some of the popular technical indicators used by traders include:
Actually the number of binary options trading strategies that can be adopted by a trader can be substantial. The key toward successful trading is to adopt what is right for your style as we are all individuals with different personalities. As with Forex trading, there must be discipline and a consistent approach towards trading in the volatile financial markets to come out ahead of the game.