Four Tips to Improve Binary Options Trades
Binary options trading now offers different choices in the likes of choosing between Touch, High/Low, 60 seconds and so on. Although each of these binary trading methods require their own strategies for entry and expiry times, there are some simple tips that traders can follow in order to ensure a higher rate of success with binary trading irrespective of the type of binary options that you trade. Despite the fact that binary trading is easier than forex, the risks involved are pretty much the same as compared to trading forex.
Keep an eye on Economic Calendar
Entering a binary options contract during days when the economic calendar is filled with key events plays a big role. Economic events bring with it volatility to the market. The chances of a trade reversing is just as likely as the target price being reached. In the same note, some binary options trades show better success when the markets are free from any influencing economic news. This is especially true in case of a trending pair or instrument that you are trading.
60 Second options for example have a higher success rate when trading exactly during the time when the economic news is released, but on the other hand, a high/low binary option trade would be better when there is no market noise.
Choosing the expiry times
How many times did you enter a binary options trade, only to see the contract expire just a few pips away from your target price? Choosing the expiry time is an important aspect that determines your success in binary options trading. High/Low binary options trades are especially susceptible to expiry times.
If you enter a binary options trade and the pair you have chosen shows that price was rejected at a key resistance level, then ensuring that the expiry time gives your trade enough time is critical. On the same note, setting too far/wide an expiry time could well result in price reaching your target price and bouncing away from it, leaving you out of the money. It is therefore important to pay attention to the time frame that influences your trade decision. If you were trading off the 15minute candlesticks, then make sure that your trade expiry time is set up appropriately (ex: 45 minutes, 1 hour)
Risk and Money Management
It is quite easy to succumb to greed. Traders end up risking more capital than required in hopes to strike it big. This is one of the many reasons why most traders end up losing some if not most of their trading capital. Stick to the rules. Risking not more than 1% – 10% of your capital. For an average deposit of $500, most binary options brokers have a minimum trade amount ranging from $10 – $25. Make sure that the amount you risk does not exceed more than 1% – 10% of your capital.
Also pay attention to your winning/losing trades. Ideally make sure to keep your wins more than losses. Typically when an option expires out of the money, the trade loses their risked capital. On the other hand, an option that expires in the money gives a return of 85%. Let’s illustrate this with an example.
Trade 1 was risked with $100, which resulted in an out of the money expire thus the trader loses $100.
Trade 2 was risked with $100, which expired in the money, giving you a profit of $85.
However, note that you are still 15% short of your previously lost trade. Ideally ensure that you maintain a consistent 1:2 trade ratio. 1 losing trade for every 2 winning trades.
Trade with a clear mind
Psychology plays an important role in trading as a whole. Make sure to trade with a clear mind and free from distraction or previous biases. Markets tend to reverse without any warnings, so if you are bent on making a PUT option despite price going against you, then its time to take a break for a day or two before you resume trading.
Overall, binary trading offers a great way for traders to play the financial markets. While the risk factor is pretty much the same as with forex (with the exception that in Forex, you can close your trade before price hits your stop loss), binary options is a great way to get accustomed to money and risk management. Risking small amounts and making a conscious effort on your winning and losing trades can help in longevity of your trading capital.