Can you make money on binary options trading?
Binary options trading is a new trading opportunity, an affordable way to make money on financial assets with a low barrier of entry. Of course, like any other financial instrument, binary options trading carries risks. Like any other financial instrument, binary options trading requires skills, working instruments, practice, and a well-thought-out approach. Making money on binary options is real when you know how to do it right.
The legality of binary options depends on the legislation in a certain country. In some countries, binary options trading is restricted as it is considered gambling. For example, binary options trading is prohibited in India, Sweden, Slovakia. In other countries, like Thailand and Malaysia, the binary options are absolutely legal. That’s why before starting to trade you should study the legislation of your country. If there is no local broker that works with binary options, pay attention to the international platforms which work all over the world.
Many novice traders ask — are the binary options real gambling or betting? The answer is no. There is an essential difference between binary options trading and betting on sport or cybersport. Trading is a financial activity when you should learn how the market works and which assets are the most profitable. Also, it requires the ability to work with trading instruments. As you see, binary options trading requires a certain level of skill and knowledge. As for gambling or betting, you don’t need to know all the rules of a certain sportive game to make a bet. All that is necessary is to compare the common level of winnings and losses or to pay attention to the forecasts of the bookmakers.
The second difference is the method of winning. Success in trading depends mostly on the knowledge and professionalism of the trader. The key winning factor in trading is the trader himself and his trading strategy. In a critical situation, traders can cardinally change the strategy or leave the market to save money.
Gambling and betting are quite the opposite. When you make a bet, the major part of success in betting depends on the professional level of the team and luck. You can make a bet but you don’t need to monitor the situation. All you need is to check the results on a certain day.
How to make money on binary options?
It is necessary to understand the mechanism of binary trading. The essence of trading is that a trader makes a forecast for the change in the price of an asset at a certain time period. The direction is selected by two buttons: «Buy» or «Sell» (Call and Put). If the forecast is correct, the trader makes money. If he fails, he loses his capital.
Discipline is necessary when you start to trade. Trade at the same time when the stocks open. Use the economic calendar so as not to miss the time of trading. At the first stage, your main goal is to understand how the market and technical indicators work and to create a trading strategy. That’s why when you are only a beginner, trade four hours a day, not more because when you are overworking, you lose your concentration and make mistakes.
Fundamental and technical analysis
To determine how the price will behave, a good trader takes into account and analyzes all these factors, understanding how they can impact the market. Only the trader that understands technical and fundamental analysis can make the correct forecast. Some traders use both methods, others prefer only one type of analysis. Both of these methods have their advantages. Learn them and then you can choose which type of analysis suits you more.
Fundamental analysis is an analysis of geopolitical and natural factors, major news and statistics on a specific industry, actions of central banks, and government regulators.
Basic parameters of fundamental analysis
- Comparison method. For a long-term forecast, it is necessary not only to know certain key indicators that affect the value of an asset but also to be able to compare them in different states. Only by comparing similar indicators and their dynamics, it is possible to draw a conclusion about the direction of price movement.
- Induction and deduction. Using induction, a trader analyzes individual facts about a currency or country and finds a relationship between various indicators. Using deduction, a trader moves from the particular to the general and sees how the individual case can be transferred to the entire industry.
- Correlation method. This is a measurement of the dependence of objects on each other. When one object (price or indication) changes, the other factors also change in their turn.
- Grouping and summarizing. A trader divides indicators for any currency or industry into groups based on one or more criteria and analyzes them.
- Seasonality. Many movements in the currency market are influenced by seasonal factors. This is the stock price of agricultural corporations, energy prices depending on the season. Changes in these factors affect the exchange rate of the national currency.
Technical analysis is primarily the analysis of chart patterns showing the market situation at various intervals in the past. Based on this, a forecast is made about at what point the market situation may repeat itself.
Main figures of the technical analysis
- Head and Shoulders. This pattern consists of three local minimums/maximums that follow each other. The highest sides and center are “Head”, the smaller sides are “Shoulders”, the support level is “Neck”.
- Triple Top/Triple Bottom. These reversal patterns are a variation of the “Head and Shoulders”. The “Triple Top” figure is applied on an uptrend. When the price tries to overcome the resistance line upwards for the third time, but can’t do it, the price moves downwards. That means it makes a reversal. Graphically, it looks like three ascending peaks. A “Triple Bottom” is a reflection of a “Triple Top” that is used in a downtrend.
- Triangles. This is one of the most common technical analysis patterns. The main types of triangles: ascending, descending, symmetrical, expanding, wedge.
- Pennant/Flag. These figures show the short-term price consolidation, after which they move up or down. The Flag shape is bounded by parallel lines, and the Pennant is bounded by converging lines.
- Rounded Top/Rounded Bottom. These figures show an increase in the volume and number of unfinished positions, of those who go against the trend. Most often, such patterns are found on weekly and daily timeframes.
- Butterfly Gartley. This is a reversal pattern based on the Fibonacci sequence.
- Diamond (Rhombus). A rare pattern that is formed from support and resistance lines that are parallel to each other.
Analysis of risks
Analysis of risk is an integral part of the trading. It starts with budgeting. Decide which sum of money you are ready to spend and what risks are acceptable for you. Then, diversify the risks. You can do it by working with several assets and using various trading instruments. For example, you can open one option for the cryptocurrency pair and one for the stock. Pay attention to the number of options opened. Use no more than 3-5% of your capital in one trade. Increase the sum of your trades gradually. With each profitable trade, your deposit grows. This means that the sum of transactions should also grow.
Strategies for binary options
For successful trading, there is necessary to act consistently and thoughtfully. In other words, there is necessary to have a trading strategy. The trading strategy is the sequence of actions that lead the trader to profit. Here are some examples of strategies for the different timeframes. They suit both novice and professional traders.
60-second strategy for binary options
60-second strategies are perfect for scalping and day trading as they allow you to make money in a short time period. The “Neptune” strategy is one of these working methods. Sometimes traders use the automated method for this strategy. However, to control the situation it is better to trade manually.
This strategy uses three indicators:
Bollinger Bands (BB). This indicator shows the volatility and direction of the current trend. The horizontal line of BB signalizes the flat. During such periods it is better to leave the market, especially when the price channel is narrow.
Exponential Moving Average (EMA). The intersection of BB and EMA or the rollback (breakdown) of the EMA’s borders will be the signal to start the trade. Open the trade on the next candle.
Awesome Oscillator (AO). Awesome Oscillator confirms the signals of the previous indicators.
CALL Option. Price and Moving Average push off the lower border of BB or cross its middle from down to up. Awesome Oscillator is above or maximally close to zero, the color of the histogram is green.
PUT Option. Here is the opposite situation. The price and MA cross the middle of BB from up to down or cross their upper limit. The Awesome Oscillator is below or close to zero, the color of the histogram is red.
Mechanism of trading
If you are a beginner, trade only on the zero crossings of AO. Then, you can trade on reversals for CALL and PUT options. Pay attention to the longness of the Bollinger Bands’ sideways movement. The longer it is, the stronger the trend after its ending. Open the options when you see the reversal of MA and the strong trading signals.
During the publication of the market news, it is better to stay away from the trading. Wait for 30 minutes before and after the publications. Use the economic calendar in order not to miss a time of publications.
One-minute strategy for binary options
Another simple strategy that works for beginners is the strategy “Woodcutter”. If you are a beginner, apply this simple strategy for the work on the small timespans.
This strategy uses three indicators:
Two Simple Averages (SMA) and one Exponential Moving Average (EMA). These indicators will identify the general direction of the trend.
Standard MACD (12, 26,9). This indicator works as the trend and performs a dual function: trend and oscillator. It will show the moment to open the option.
CALL Option. The fast MA crosses both slow Moving Averages from bottom to top with confirmation of MACD. One or several bars should be above the zero lines.
PUT Option. The fast MA crosses both slow Moving Averages from top to bottom with confirmation of MACD. One or several bars should be below the central lines.
Mechanism of trading
Open the option on the next candle after the trading signal. The longer the sideways movement on the market, the higher the probability of a strong trend after its completion. In such situations, you can open trades at the first sign of a Moving Average reversal and strong signals. If necessary, change the parameters of indicators according to the market volatility. Stay away from the market during the flat periods. This will help to effectively adjust the strategy to MACD reversal signals and to rebound from Moving Averages.
VIP strategy for binary options
Sometimes the trader needs to get a fast profit to compensate for the losses or to leave before the period of high volatility. Of course, it’s not so easy, because the major part of the high-profitable strategies requires the work on the long timeframes and stable market. But if you don’t have much time to wait, use the VIP strategy for binary options with Ichimoku Cloud.
Ichimoku Cloud or Ichimoku Kinko Hyo is the complex indicator created for the Japanese stock index but then, it became widely used for all types of trading. Ichimoku Kinko looks like a cloud with several lines, and every line has its own function.
Characteristics of the indicator
For this strategy, you need to use three indicator lines
- SenkouSpan A/B or Kumo Up/Down. The lines are shifted forward and give leading signals of a trend change.
Between the SenkouSpan A — B, lines are the "Ichimoku cloud” (Kumo in Japanese), usually highlighted by shading. When the price chart moves within this sphere, it means a temporary consolidation, rebound/breakout from the borders gives final confirmation to other signals.
- Chinkou Span. The third forward line displays the resulting price dynamics and direction.
Look at the picture to see how does the Ichimoku Cloud looks like.
Mechanism of trading
Open the options on the trend or with the Kumo channel (break or rebound from the edges).
- Crossing SenkouSpan A — B. The beginning of the rollback to Span A. This may be the sign of the reversal. The signal may be ahead of the curving line, as both lines are placed ahead of the price. However, it is better to confirm this suggestion by the additional indicators.
- Trend by Chinkou Span. Moving Average confirms the general direction of the price movement.
- Breakdown of the Kumo zone. We trade in the same way as line breakouts. With a wide range, we open options as on conventional channel indicators. An option on the next candle after the rebound, the expiration of at least 3-4 candles of the timeframe.
Open a deal on the next candle after binary signals. The expiration time of the options should be at least 5 minutes, even if a minute is selected as the working timeframe.
5-minutes strategy for binary options
The 5-minutes strategy is a good variant that suits both novice and experienced traders. If you are a novice trader, you can use this strategy to move further in your practice. If you are a professional trader, you can apply this strategy to cover your losses for a short time. A 5-minute strategy “Dynamic” is the trend strategy.
This strategy uses two indicators:
Bollinger Bands (BB). This indicator will show you the trend’s direction and the volatility. If the Bands lie horizontally, this is flat. During the flat periods, it is better to stay away from the trading.
Commodity Channel Index (CCI). This indicator shows the dynamic and the speed of the price. Use this indicator to confirm the signals from the Bollinger Bands.
CALL Option. The price bounces from the lower border of BB or breaks through its middle line from down to up. CCI is above zero levels.
PUT Option. Opposite situation. The price stays below the higher limit of BB or it breaks the middle from up to down. CCI is below the zero levels.
Mechanism of trading
Open the option on the next candle after the binary signals. Don’t set the log expiration time. The longer is the sideways movement of BB, the higher will be the possible trend reversal after such a movement ends. In this situation open the option after the first signs of CCI reversals and strong trading signals. If you see a stable trend, you can open several trades. During the publication of important market news, don’t open the trades 30 minutes before and 30 minutes after the publication.
10-minutes strategy for binary options
Those who prefer calm and stable trading can use long and medium-term strategies. Such strategies don’t require the ability to react quickly, but they demand the capability to wait. So if you have enough time for the trading, you can safely apply the 10-minutes strategy “Calm river”. This is a trend strategy that works for all types of assets.
This strategy uses two indicators:
Two EMA’S (Exponential Moving Averages) with periods of 20 and 30. These trend indicators will determine the time to open the option. Work only of the range is between at least 15-25 points! Stay away from the market during the flat periods.
MACD (12,26,9). MACD works both as the trend indicator and as the oscillator. Use it to confirm the moment to open the trade.
CALL Option. The price breaks through the Moving Average from down to up. MACD is growing and placed above zero levels.
PUT Option. Opposite situation. The price breaks through the Moving Average from up to down. MACD is falling and placed below zero levels.
Mechanism of trading
Open the option on the next candle after the trading signals. The father is Moving Average during the breakdown, the more accurate the signal is. Remember, that both indicators should confirm the favorable situation. The expiration time should not exceed 5-7 minutes, even if you work on the one-minute timespan. Stay away from the market during the flat periods. The most profitable signals are located only on the trend areas.
Analytical instruments are necessary to identify the profitable signals and the trend direction. The quality of analytical instruments influences the work of the trading and the final result of his work. The modern and qualitative trading service should include a full range of analytical tools to simplify the trader’s work. Select the analytical instrument depending on your style of trading and analysis. Some instruments suit the technical analysis and some the fundamental analysis. Apply only the instruments that work you understand. Try not to use too many trading instruments, because you will receive too much information and won't be able to stick to your strategy. Three instruments are enough for a regular trading session.
Here are the most common instruments that traders can apply in daily work.
Trading signal. The signal is the main source of information for the trader like the type of the asset, type of signal (PUT or CALL), time of the option’s expiration, trading algorithm, the percentage of profitable trades with the current indications, time of the signal’s appearance and the price at the moment it emerged.
Economic calendar. The economic calendar displays the main economic news (information from the economic departments, changes in the trade balance) that may impact the currency rate. Use the economic calendar to not miss the fundamental news.
Market trends. Market trends show the changes of the current trends on the different timespans. Compare the date of market trends with the data of the economic calendar to predict the continuation of trend or reversal.
Online chart. The online chart is the visual representation of the current market state. The trader analyzes the movement of the price on the chart and identifies the point to open the option. A trading chart can be presented in the form of bars of candlesticks.
Technical indicators. A technical indicator is a tool that carries out the calculations according to a certain formula. The indicators are divided into two types: trend (shows the direction of the trend or reversal) and oscillators (shows the borders of the channel of the areas of oversold/overbought).
Heatmaps. Heatmap is the colored scale showing the percent of profitable signals on different timespans. Use the heatmap to create the long-term strategy and to select the most beneficial signals.
Signal history. The signal history is an instrument that helps the trader to monitor the signal’s behavior in the past. This data allows the trader to understand by how much a certain signal is strong or weak.
SuperTrend Indicator. This indicator provides all necessary information about the current trend. It is constructed with two parameters — period and multiplier. SuperTrend works with every equity and on any timeframe.
Ichimoku Cloud. Ichimoku Cloud is a universal indicator that shows support, resistance, market trend, and market momentum. The Ichimoku cloud can be used with other technical indicators in order to better assess risk.
Balance of Power (BOP). This indicator is used to access the resulting strength of buyers and sellers. BOP oscillates around zero lines, where values show the Bulls’ or Bear’s market dominance.
The trader also needs to understand what the trading signal is. The signal is the alert that shows up when something happens in the market. It appears when certain conditions are met. The trading signal provides the trader with all necessary information about the equity: currency pair, type of signal, power, expiration. The ability to evaluate and choose accurate signals is important for traders. However, traders should remember, that signal is the guess and not the call to action.
Bot for binary options
Sometimes traders prefer to work with automated bots. Trading bots are software programs that make trades on behalf of the users. They behave according to the predetermined algorithm. Automated trading has certain hidden rocks. You don’t clearly understand the mechanism of the automated algorithm. Often the automated bots act by the typical schemes and can’t change their algorithm in difficult situations. You can’t control the bot behavior and you can’t change the algorithm if you see that it works with bags.
Remember that the market can be very unpredictable and the robot that submits the standardized algorithm won’t bring you the profit. Trading requires the ability to change the strategy quickly and to take unusual and risky decisions. These are the things that only humans can do.
How to start binary options trading?
To make the trading process more comfortable, the novice trader should understand several crucial things. Trading may seem difficult but it’s just a skill that requires studying and practice.
The novice trader should understand that success never comes easily. A demo account is a perfect opportunity to learn the basic principles of trading and the work of trading indicators. The first trades made on the demo account may be very profitable because the trader loses nothing, but when it comes to the real market, the stress appears.
The novice trader should quit trading at this stage. He needs to learn how to control the negative emotions and learn more about trading. You can watch the educational videos of professional traders, study books, forums, webinars, and articles. Sometimes traders even go to the training courses with the coach.
At this stage, it may seem that you have learned enough to open the big trades and to risk all. But this is just a semblance. If you don’t check all the information received and thoughtlessly apply the techniques of the different coaches, you have no profit. Here the moment when the novice trader understands that all ideas should be tested on the demo account.
The next important thing to learn is money management. Money management is a financial strategy that helps you not to lose money.
How to do the money management
- Set the acceptable amount of the option.
- Calculate the maximum acceptable amount of losses per option.
- Analyze and compare the potential risks and profits of the transaction.
- Develop the tactics on how to bring down the risks.
- Make the decision regularly.
Last but not least is the ability to control greed and emotions. Sometimes the trader may think that he can earn any amount of money. He starts to open too many options and won’t have time to monitor all the trades. Or he spends too much time monitoring all the transactions and loses everything. An experienced cat does not run after all the mice but catches one that he has chosen. Open one or two options and stick to your strategy.
The time spent in the market depends on the goal: be prepared to devote at least 4-5 hours a day to the market, like any professional trader.
How to start binary options trading?
- Check the current legislation concerning binary options trading.
- Open the demo account.
- Choose the most profitable broker.
- Learn more about the trading instruments.
- Develop the trading strategy. Test all your trading ideas with different indicators.
- When you develop one or two strategies, add some variations and modify the strategy a little.
- When you have enough experience, open a real account but not spend all your deposit. Always test the new strategy on the demo account and never stop learning.
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