Different Binary Options Trading Strategies

In a previous article, Trading Center introduced the basics of binary options trading, covering both technical aspects and general rules. Now, let’s take a closer look at binary options by exploring different trading strategies you can use in your sessions.

The Basic Binary Options Strategy

This style is one of the most popular strategies used by binary options traders, and for good reason. With this basic options strategy, traders protect themselves from large losses. The strategy involves choosing an underlying asset or Forex pair and then waiting for market movements around the strike price. If prices are going up, investors place a call option.

Let’s use the USD/EUR currency pair as an example. Suppose this pair is expected to reach 1.3000, and you stand to earn $100 if you’re correct. You place a call option that expires in one hour, with a 70% payout if you win and a 30% loss if you don’t. After 30 minutes, the price hits 1.3016. This looks good, so you buy a put option on the same pair at 1.3016, expiring in the next 30 minutes. There are two possible outcomes when your binary options contracts expire.

(i) First outcome: your one-hour call option wins, but the 30-minute put option loses. In this case, you’ll earn $170 from your call option (70% payout) and get a 15% refund on the losing put option. The reverse could also happen—you lose 30% on the call option but get a 15% refund on the put option.

(ii) Second outcome: the best case—both your call and put options win. You would receive $340 in total ($170 x 2).

In both cases, it’s impossible to lose fully, so the maximum risk during your session is $15.

The Martingale Strategy

The Martingale strategy is based on the idea that after each losing trade, a trader should double their stake on the next trade to recover previous losses and make a profit. In other words, you keep doubling your investment with every loss until you win a binary options trade. Some traders see this as an effective way to avoid losses since binary options are an “all or nothing” type of trading.

However, as you might guess, the Martingale strategy is very risky. Nadex warns that while this method may seem attractive, cost averaging can be dangerous because traders risk huge losses by increasing their bets after losing trades. Be very careful when using this strategy—it can wipe out your savings for the week in just a few hours.

Conservative Long-term Strategy

This approach is for traders who want to grow their capital slowly and steadily. The goal of the Conservative Long-term Strategy is to wait for the ideal Fibonacci setup. Let’s look at the chart below as an example.

On the chart, you’ll see that the price of the currency pair has been moving in a zigzag pattern for some time. Using the Fibonacci method, draw a line from Points 1 to 2 for both a downtrend and an uptrend. In this case, the target projection level is 161.8.

The key is to be patient until two conditions are met:

• The price reaches the Fibonacci prediction level at 161.8.

• The price is inside or outside the red levels.

There are many other strategies you can use for binary options, but these three should help guide you in your trading sessions.

■ TradingCenter Blog (2018)

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