Binary options Strategies Review
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Binary Options Trading Requires Very Little Experience
The common misconception is that binary options trading can only be done by one that has a certain amount of experience in the area. There is no requirement to have any previous experience in financial trading and with a little time, any skill level can grasp the concept of binary options trading. The basic requirement is to predict the direction in which the price of an asset will take. The price will either increase (call) or fall (put). Successful binary options traders often gain great success utilizing simple methods and strategies as well as using reliable brokers such as 24Option.
How to minimize the risks
Our goal is to provide you with effective strategies that will help you to capitalize on your returns. These are simple techniques that will help to identify certain signals in the market that guide you make the proper moves in binary options trading. Risk minimizing is important for every trader and there are a few important principles that aim to help in this area. Binary options trading can present several risks but to decrease them, take the following into consideration.
• Never invest the entirety of your capital at once
• Review the dynamics of your trading asset prior to investing
• Exercise the strategy by investing only 5 to 10 percent of your equity per placement
There are several assets to select from in binary options trading. However, the oldest and most effective approach to minimize risks is to focus on a single asset. Trade on those assets that are most familiar to you such as euro-dollar exchange rates. Consistently trading on it will help you to gain familiarity with it and the prediction of the direction of value will become easier. There are two types of strategies explained below that can be of great benefit in binary options trading.
1. Trend Strategy
A basic strategy most adopted by beginners as well as experienced traders. This strategy is often referred to as the bull bear strategy and focuses on monitoring, rising, declining and the flat trend line of the traded asset. If there is a flat trend line and a prediction that the asset price will go up, the No Touch Option is recommended.
If the trend line shows that the asset is going to rise, choose CALL.
If the trend line shows a decline in the price of the asset, choose PUT.
This method works the same as the CALL/PUT option except in this case, you select the price at which the asset must not reach before the selected period. For example, Google’s share price is $540 and the trading platform is on the No Touch price of $570 with percentage returns of 77%. If the price doesn’t reach $570 after the specified time, then there is a gain.
2. Pinocchio strategy
This strategy is utilized when the asset price is expected to rise or fall drastically in the opposite direction. If the value is expected to go up, select CALL and if it’s expected to drop, select PUT. This is best practiced on a free demo account from one of the brokers.
3. Straddle Strategy
This strategy is best applied during market volatility and just before the break of important news related to specific stock or when predictions of analysts seem to be afloat. This is a highly regarded strategy utilized throughout the global community of trading. This is a strategy best known for presenting an ability to the trader to avoid the CALL and PUT option selection, but instead putting both on a selected asset.
The overall idea is to utilize PUT when the value of the asset is increased, but there is an indication or belief that it will being to drop soon. Once the decline sets in, place the CALL option on it, expecting it to actually bounce back soon. This can also be done in the reverse direction, by placing CALL on a those assets priced low and PUT on the rising asset value. This greatly increases chances of success in at least one of the trade options by producing an “in the money” result. The straddle strategy is greatly admired by traders when the market is up and down or when a particular asset has a volatile value.
4. Risk Reversal Strategy
This is indeed one of the most highly regarded strategies among experienced binary options traders across the globe. It aims to lower the risk factor associated with trading and increase the chances of a successful outcome that results in positive profit gains. This strategy is executed by placing CALL and PUT options simultaneously on an individual underlying asset. This is especially beneficial when trading on assets with fluctuating values. Naturally, binary options can experience two possible outcomes and trading on a two for two opposite’s predictions over an individual asset at once, guarantees that at least one will generate a positive outcome.
5. Hedging Strategy
This strategy is commonly known as Pairing and most often used along with corporations in binary options traders, investors and traditional stock-exchanges, as a means of protection and to minimize the associated risks. This strategy is executed by placing both Call and Puts on the same asset at the same time. This assures that regardless of the direction of the asset value, the trade will generate a successful outcome. This provides the investor with profits of an “in the money” outcome. This is a great means of protecting yourself as an investor in whichever scenario is produced. It’s sort of an insurance method that prepares you for any scenario.
6. Fundamental Analysis
This strategy is mostly utilized during stock trading and primarily by traders to helm gain a better understanding of their selected asset. This increases their chances of accuracy in the prediction of future price changes. This approach involves conducting an in-depth review of all of the financial regards of the company. This info should include earnings reports, market share and financial statements. T
his review helps the trader to better understand the previous activity of the asset and its reaction to certain financial or economic changes. This review helps the trader to make a strong prediction under familiar circumstances in future trading strategies. Keep in mind, that using a good binary trading robot can help you to skip these steps completely.
The best way to practice is to open a free demo account from one of the brokers.
References and Further Reading:
1. Hedging by sequential regression: An introduction to the mathematics of option trading (H Föllmer, M Schweizer – Astin Bulletin, 1989)
2. Dynamic hedging portfolios for derivative securities in the presence of large transaction costs (A Marco, PS Antonio 1994)
3. Mathematical modeling and methods of option pricing (L Jiang, C Li – 2005)
4. Quantile hedging (H Föllmer, P Leukert – Finance and Stochastics, 1999)
5. Paul Wilmott on quantitative finance (Paul Wilmott 2013)
6. Robust hedging of barrier options (H Brown, D Hobson, LCG Rogers 2001)
7. Trading Binary Options (A Nekritin 2012)
8. System and method for creating and trading credit rating derivative investment instruments (D O’Callahan, D Salvino, C Shalen 2005)
9. User-interactive financial vehicle performance prediction, trading and training system and methods (Peter Hancock, Jeffrey Saltz, Andrew Abrahams, Sanay Hikmet 2008)
10. Method of creating and trading derivative investment products based on a volume weighted average price of an underlying asset (Dennis O’Callahan, Catherine Shalen 2006)
11. One-touch double barrier binary option values (CH Hui 1996)
12. Static hedging of exotic options (P Carr, K Ellis, V Gupta 1998)
13. Options trading volume and stock price response to earnings announcements (C Truong, C Corrado 2014)
14. Currency derivatives: Pricing theory, exotic options, and hedging applications (DF DeRosa 1998)
15. To pay or be paid? The impact of taker fees and order flow inducements on trading costs in US options markets (RH Battalio, A Shkilko, RA Van Ness 2011)
16. Derivatives: principles and practice (RK Sundaram, SR Das 2011)
17. Understanding the implied volatility surface for options on a diversified index (D Heath, E Platen 2004)
18. On pricing barrier options (P Ritchken 1998)
19. Derivative securities and system for trading same (Bradley J. McGill, Evan J. Winston)
20. Event-driven trade link between trading and clearing systems ( Baecker, J Buddendiek, K Carnahan 2008)