Binary options offer investors the possibility of high profit percentages with less risk than traditional stock trading. You only need a small amount of money to start and return on your investment is quick, from one to 30 days. Risk is still a factor, just on a smaller scale. But you need more than luck, so here are some beginner strategies to help you come out on top in the binary options market.
Watching Trends
Image via Flickr by Sean MacEntee
Watching market trends gives you a better chance at success. The same is true for binary options. By studying trends on the various charts such as hourly, daily, and weekly, you learn to spot the signal showing the best time to invest. It also helps you choose the expiry date of the binary option by giving you an idea of the average length of the upswing. Go with the market flow as indicated by the trends to help you be successful.
1-2-3 Strategy
For beginners, the 1-2-3 strategy is an effective way to understand the market. To understand this method, watch the charts for an upswing. Notice a downtrend always follows the upswing and an uptrend always follows the downswing. To work this formula, mark the peak as point one. Now, as the trend heads down, mark the bottom as point two. Once the price heads up again mark the new high point as three. Once you see the pattern, you enter the market either on the up or down movement and place the proper trade. Remember, with binary options you can choose whether the asset goes up or down.
When used correctly, the 1-2-3 strategy offers a chance of high profitability and keeps you out of some possible bad trades. Unexpected market moves still throw this strategy into disarray but, generally, you find more success than failure.
Hedging Strategy
As with any stock market transactions, hedging is a choice. This involves placing two contracts on the same asset at off-setting points. By doing this you minimize your risk, like insurance on your home protects you if you suffer a loss. Again, you watch the trends and put in a call when you think the asset is rising and place a put when you see the asset start to fall. When done correctly this strategy yields high rewards and smaller losses.
Betting Strategy
Sometimes beginners treat the binary options market like betting on a game. These people carefully watch the news and place contracts based on good or bad economic indicators. Others watch market behavior and base their strategy on technical and statistical data. Both methods help beginners understand the factors that affect the market and, once you understand that, it is easier to know when to place a call.
Binary options need only a small amount of money, compared to other stock trades, and therefore, pose less risk. But like all trading, you need a strategy for deciding when to place bids and when to hold back. As a new trader, research the various methods and choose the one strategy that best suits you and your portfolio.