Trading strategies for binary options: list and description

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Binary options in their present form appeared in 2008. The economic crisis that broke out at that time led to the emergence of many new financial instruments that increase the opportunities for traders.

The principle of binary options ("all or nothing") is misleading in its apparent simplicity. As well as in the Forex market, it requires a deep knowledge of technical analysis and the ability to use trading strategies.

Dependence of working with options on the timeframe

Beginner traders, driven by the desire for easy money, prefer the shortest expiration time. Working on small timeframes (less than 5 minutes) is comparable to gambling, the winnings in which depend entirely on luck. All effective trading strategies for binary options have an expiration time of 5 minutes or more. The older timeframe 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 full technical analysis. More often, the terminal is like a 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 conduct analysis using third-party tools, for example, use terminals designed for Forex trading.

Which expiration time to choose

When choosing a trading strategy for binary options, you need to take into account two circumstances: 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 lies 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 the expiration is taken equal to 4 hours.

The older the timeframe, the stronger the signal. However, the percentage of profit pledged by the broker for this expiration may be lower.

Turbo options

The fastest earning and the most unreliable using the M1 timeframe. There is a lot of market noise on the minute chart, as well as various false movements. Despite the understanding of where the price is heading in the 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 will needminute chart. You need to set a moving average (EMA) on it, built by the exponential method with a period of 28. EMA should be created at the closing prices of the candles.

In the footer of the chart, you need to set up 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 won't be visible. In addition, you need to add a signal level equal to 20.

This binary options trading strategy works like this:

• For a Put option, the moving average must be above the candlestick chart (or the EMA candlestick should break down).
• The ADX line should be under level 20 or touch it.
• When a breakout bearish candle occurs, a 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.
• The trade should be entered on the next candle (its color is the same as the previous one).

This was considered an entry for a Put option. For Call, the opposite conditions are met, with the exception of the ADX indicator. Its line in both cases should be near or below level 20.

Strategies for M5 timeframe

The following 5-minute binary options strategy 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 candlestick with a small body and an abnormally long tail.

To open a trade, you need to find a pin bar that has an intersection with one of the outer Bollinger bands. 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 trade is opened on the next candle. The expiration time is chosen to be 10 - 15 minutes.

It doesn't matter what color the pin bar is in this strategy. 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 with the trend and in the sideways, because the pin bar pattern is a reversal figure. Bollinger bands limit the trading range. The appearance of a reversal pattern on one of them signals a change in the balance between bulls and bears. The only disadvantage of this method is that such a pattern occurs quite rarely.

Entry on 15-minute pullbacks

The next great binary options trading strategy is based on the classics of technical analysis - trend moves and pullbacks.

For analysistwo timeframes are used: hourly and 15-minute. A trend line is drawn on H1. M15 is needed in order to find reversal patterns on rollback movements. Mostly pin bars and engulfing patterns are used. The essence of this binary options trend strategy is as follows:

• After the trend is established on the hourly chart, you need to wait for a pullback.
• It needs to be fixed on M15. It starts at the moment when local extremums stop updating their highs or lows.
• Then you need to draw a countertrend.
• When the price approaches the countertrend line, you need to look for reversal patterns. A bounce can also be seen as a signal for a trade that opens in the opposite direction of the trend.

Entry occurs on pullback candles, and the expiration time is taken equal to 45-60 minutes.

Work on timeframe 1 hour

Trading strategies of professional binary options traders are often based on higher timeframes, since the price for them has a large amplitude of movement.

In 2014, a forecasting method called Price Action appeared. It incorporates various graphical models of price behavior. BO traders also use these models in their work. One of the strategies for working on the hourly chart is called "Box".

The setup called "Inside Bar" participates in its formation. This pattern occurs whenthe momentum pushing the price is decreasing. This creates a slight balance between bulls and bears. Then, in the range of a large impulse candle, one or several others are formed, whose bodies are smaller. Their shadows should not go beyond the mother candle.

Breaking through the price range formed by the high and low of the mother candle will be a signal to enter a trade. The expiration time is 1 hour.

Also, this strategy works well on the H4 timeframe. In this case, the expiration is taken equal to four hours.

Divergence binary options trading strategy

Classic indicators often help in binary options trading. They are built into the strategy in the same way as in classical trading. One of the methods of working with indicators is the detection of divergence (divergence).

To do this, the MACD and the RSI relative strength index are more often used. At the moment when the candlestick chart and the indicator line show a divergence between tops or bottoms, there is a signal to enter a trade.

Divergence means that the strength of the trend movement has decreased, a reversal is possible. To finally be convinced of a change in trend, an additional factor is needed. It can be a moving average or a trend line (countertrend line). You need to open a deal on the breakdown of the line.

This binary options trading strategy works well on M5, M15 charts. Expiration timea multiple of three relative to the timeframe value is set.

Economic factors

Forex news trading carries both a good opportunity to earn money and great risks. Traders' expectations are often not justified, and the price goes in the opposite direction from the forecast.

News strategies for binary options have several different approaches. Often at the time of publication of events, the price on the expectation of market participants moves in the direction of the forecast. Therefore, at the time of exit, you can open a deal in this direction with an expiration of 3 minutes.

The next approach is to break through the price range. A few hours before the release of strong news, Forex calms down. The price starts to move in a narrow corridor. The breakdown of the boundaries will be a signal to open a deal in this direction. Here expiration is set to 1 hour.

The third option is the following approach. At the time of the release of the news, there is a strong price impulse, which lasts about an hour and a half. Then the price starts to walk in a narrow range for 30 - 240 minutes. The rebound of the price from the outer boundaries of this corridor is a signal to open a deal. For a Put option - a rebound from the upper limit, for a Call - from the lower one. Expiration is taken in the region of 15 minutes. But it should be remembered that a sideways breakout can occur at any time.

How to trade options after strong trend moves

Often, at the time of news release, the price makes big movements - from 100 to 200 points. Each currency pairhas its own volatility, going beyond which gives reason to expect a rollback. If at the end of the American session, after a strong movement, the trend line is broken and the extremes stop updating, this is a signal to open a deal in the direction of a rollback. A deal can be opened with an expiration of 6-10 hours, that is, before the start of the European session.

However, you need to take into account 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.