Long-term binary options strategies that do work

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Binary Options Strategies

Binary options offer market players a great way to trade on the direction of an asset or the overall market due to their all-or-nothing character. In addition to straight-forward risk/reward profiles and defined risk, they can be used for shorter-term strategies due to hourly, daily or weekly contract expirations.

Get Familiar with These 6 Option Strategies

Directional Binary Options Strategies

For a purely directional trade, let’s use the US 500 Binary as an example. This is a contract Nadex offers which is a derivative of the E-Mini S&P 500 future and uses a Nadex calculation of the last 25 futures trades just prior to contract expiration.

If you believed the E-Mini S&P 500 futures contract was headed for new highs after trading through a resistance level, you could buy the US 500 Binary to capitalize on your market opinion.

On the other hand, if you believed the E-mini S&P 500 future won’t reach a certain price level target; you could sell the binary strikes above your price target in the exact same binary option.

For this directional trade example, let’s assume the following:

  • E-Mini S&P 500 futures contract trading at 2756.75
  • Bullish view on the E-Mini S&P 500 futures with 2770.00 price target by end of the trading day
  • Current time is 10:50pm EST
  • Daily contract expires 4:15pm EST

Looking at a screenshot from the Nadex platform, there are four different strike prices that have active markets below your target price of 2770.00 expiring at the end of the trading day. Each strike will have its own unique risk/reward profile relative to the underlying market price and binary strike price.

Buying the Binary Option at the Offer Price:

US 500 (Sep)> 2760 – Cost $45 / Potential profit $55 / Return 122% At Expiration

US 500 (Sep)> 2763 – Cost $34 / Potential profit $66 / Return 194% At Expiration

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US 500 (Sep)> 2766 – Cost $27.75 / Potential profit $72.25 / Return 260% At Expiration

US 500 (Sep)> 2769 – Cost $21.50 / Potential profit $78.50 / Return 365% At Expiration

Assume you decide to buy the US 500 (Sep) > 2763 for $34.00. All binary option contracts settle at $0 or $100 at expiration and it is important to remember that a binary option needs to be only .01% in the money for it to expire at 100. So essentially, your US 500 (Sep) > 2763 contract needs to expire above 2763 in order for you to receive the maximum payout of $100/contract. If the binary expired at the strike of 2762.00 or below, your maximum loss would be your initial $34.00 cost/contract. (Note: these examples don’t include exchange fees).

In this example, the contract will settle at $100 even if the bullish move was not as strong as expected, provided the underlying market remains above 2763 at expiration Another important point to remember is that you are in no way committed to hold your position until expiration when trading binary options. You can take your profit or cut losses early at any time before expiration if you would like to exit the trade.

Trading Volatility

Binary options may also be used as a vehicle to trade the volatility of the underlying market with limited exposure when trading the underlying market directly in volatile conditions can be quite risky.

With binary options, you can buy or sell market direction using strikes which are out of the money, i.e. cheaper initial cost. If the underlying market goes higher as anticipated and finishes above the strike if you were a BUYER, or at or below the strike if you were the SELLER, the contract is valued at $100. There is no cap to profit potential when trading the underlying market but the binary choice offers a comfortable way to participate with limited risk and potential positive return.

Low Volatility/Flat Market

If you believe the market will remain flat and trade sideways, you can trade binaries that are in the money. These binaries will have a higher initial cost and a lower return due to the capped payout structure at expiration. As long as the market remains flat, the binary is already in the money and you want no changes because the contract will be worth $100 at expiration. For example, if you paid $80 for the binary position, your net profit not inclusive of exchange fees would be $20 at expiration.

The Bottom Line

Traders can take advantage of binary options through numerous strategies on the Nadex exchange. Nadex is a fully regulated US exchange offering contracts on currency pairs, equity indices, energy, metals, agricultural and events. These strategies involve risk and may not be suitable for all investors.

Binary options strategies

A binary options trader is only as good as the strategy he follows. Finding a strategy that works, and fine-tuning it as you go, will focus your trading, build discipline and help ensure that you win more often than you lose.

In this lesson we will introduce you to three of the most popular and potentially rewarding binary options trading strategies.

We will talk you through how and why they work as well as what kinds of assets, time frames and expirations to use. We’ll also provide you with a concrete trading example for each to show you what a trade looks like.

Strategy No. 1: Short-term Boundary In options before big news events

One way binary options can be used is to predict whether the price of an underlying asset will remain within a specified range for a certain period of time or break outside its boundaries. This approach is known as boundary trading, tunnel trading or range trading.

The strategy we will introduce you to now involves making a short-term bet that prices will remain inside a specified range during a time when you think markets will be quiet and asset prices will trade sideways – for example in the ‘quiet before the storm’ often experienced ahead of a major event or news announcement that the market is waiting for.

How it works

In the run-up to major events like the monthly publication of US Nonfarm Payroll figures, the Federal Reserve’s FOMC meetings and press conferences or interest-rate decisions by central banks, many traders choose to keep out of markets, either because they are nervous of the volatility the event will trigger or are waiting to place trades on its outcome.

This often creates a lull in activity and creates a small range of price action that binary options traders can take advantage of.

How to trade the strategy

  • First, choose an underlying asset to trade. Currencies tend to work best with this strategy. It’s also possible with other assets like indices or stocks, in which case you might choose to trade in the run-up to company reports, for example.
  • Next, try and identify an upcoming event that you think will have a major impact on the underlying asset you have chosen. Our Economic Calendar outlines some of the biggest.
  • Double-check which other factors could also affect that market and make sure there isn’t another major new event happening at the same time. This could seriously blow your strategy off course.
  • If you are trading currencies, also remember that you are effectively trading two individual assets, each with a life of their own. So apply the step above to each currency in the pair you trade.
  • Look for confirmation that the asset is entering or looks likely to remain within a range and form a view on where you think the upper and lower boundaries of this range will lie. Technical analysis offers a number of patterns or indicators that will help. For example, Bollinger bands or the Moving Average Convergence Divergence (MACD) indicators can help you identify a range-bound market. The appearance of certain kinds of doji candlesticks meanwhile can indicate a trend is about to reverse or that volatility will pick up and the price will break its range, in which case it might be best to avoid this strategy and try another.
  • Next, identify the contract type that you will use. You’re looking for a ‘Boundary In’ option – also sometimes called an ‘In Range’ option – with a duration of no longer than 20 minutes and which will expire before the event starts. Not all brokers offer boundary options so make sure you’re using a company that does.
  • Price ranges for boundary trades are usually determined by the broker, but occasionally you can choose your own range – pick one strike price above the current price and one below. Make sure the range allows the price plenty of room to move within the anticipated boundaries you identified earlier – you want some leeway. Remember, the tighter the range, the higher the potential payout if you are proved correct, but also the higher the risk that your trade will fail.
  • Decide how much capital you want to risk on your trade. Our lesson on money management for binary options will help.

Example trade

US Nonfarm payroll figures are set to be announced in 30 minutes’ time. The EUR/USD currency pair will be very sensitive to the result and you notice that volatility is low. It’s currently trading at 1.11. Your binary options broker is offering Boundary In options on EUR/USD with a range of 1.109 and 1.113. You buy one that expires in 20 minutes. The market then moves sideways and your option expires with EUR/USD at 1.112 – comfortably inside the range. Your option pays out.

Strategy No. 2: Long-term High/Low options following surprise events

This is a long-term strategy in which you use High/Low options to predict whether an asset price will be higher or lower than a specified level within a pre-determined time period (usually a number of weeks).

It tends to work well following a major, unexpected news event that you think will have long-term repercussions. This could be a pioneering decision by a central bank, surprisingly good or bad corporate results or even a natural disaster.

How it works

When an important news event takes markets by surprise it can trigger some big price moves in underlying assets that are directly affected by the event. If the event looks likely to have a real, fundamental impact on assets that will last for some time it can trigger the start of a long-term price trend.

For example, if war broke out in a major oil-producing region and threatened a big chunk of global crude production, this would usually be positive for oil prices. While crude oil prices would probably jump straight after the news as the market priced in the shock, they may continue to rise – albeit more slowly and steadily – for several weeks as production was actually taken offline and the conflict perhaps even escalated.

Similarly, if the central bank of a major economy announced a big or unexpected interest-rate cut, the currency of that country could enter a prolonged downward trend.

Binary options traders can take advantage of these longer-term trends by forming a view on how far they think prices will rise or fall and how long the trend will continue. They can then use a High/Low option to bet that prices will be higher or lower than a certain point on expiry.

How to prep the strategy

  • Unlike Strategy 1, this isn’t a strategy where you can pick an event in advance and plan your trade around it. Rather, you have to act fast in the aftermath of an unexpected event.
  • Your first job therefore is to pick one or two underlying assets to specialise in and really get to understand them well. It can help to choose underlying assets that you have some special interest in. For example, if you have worked in a specific industry you might choose to trade shares of companies in that industry or one of the commodities it produces. If you have lived abroad or have family ties with a different country, you may have a more indepth understanding of what affects its currency.
  • Because this strategy is long term and involves a simple directional bet, a solid grounding in fundamental analysis is essential before you place your first trade. Apply fundamental analysis to the assets you have chosen to trade so that you understand in advance what are the biggest drivers behind its price, what other assets it is correlated to and what kind of events would be negative or positive for its price.
  • Some basic chart work is also essential. Dig out charts that show you how markets behaved following a range of major events in the past. Study what happened to the price of the asset you trade.
  • Before you place your first ‘real’ trade, it is also advisable to practise a few times with a demo account. Surprise events aren’t uncommon in financial markets, so simply wait for the next one and then place some dummy High/Low binary trades to experiment with the strategy. Even trending prices experience some volatility that could throw an otherwise winning trade out of the money if you don’t allow enough wiggle room for the price. Practice will help you learn how much to give.

How to trade the strategy

  • This strategy relies on a high degree of certainty that an event will create the directional move you are betting on. So as soon as an interesting event occurs, double-check that it is strongly correlated with the asset you trade and big enough to produce the long-term move you need.
  • Double-check also which other factors could affect the asset you will trade and make sure it isn’t simultaneously being impacted by another major news event or other head-winds.
  • Although fundamental analysis is your best friend with this strategy, you might also want to apply some technical analysis to confirm that a trend is underway before you enter your trade.
  • Next, identify the contract type you will use. You’re looking for a High binary option if you think the event will trigger an upward move or a Low binary option if you think it will trigger a downward move. Most brokers offer High/Low options.
  • Now choose the maturity and strike price you want. Your broker will probably determine for you which are available. This is a long-term strategy so go for an expiry of at least a week or two, making sure that the trend has time to develop but not leaving so much time that it fizzles out. As with Strategy 1, you also have to leave room for unexpected volatility that could knock an otherwise successful trade out of the money right at expiry. This is perhaps the hardest part of the strategy to master.
  • Decide how much capital you want to risk on your trade, remembering that the trade is generally higher risk – with a higher potential payout – the further the strike price from current prices. Our lesson on money management for binary options will help.

Example trade

Japan’s central bank makes a surprise announcement that it will act to weaken the yen in the long term, for example by selling the currency or lowering interest rates. You now try to identify a currency pair comprising the yen and another currency that is currently fairly strong. You opt for EUR/JPY and buy a High option that expires in three weeks. When the option expires three weeks later, the yen has weakened against the euro and your trade pays out.

Strategy No. 3: Short-term Breakout strategy using previous day’s highs and lows

With this strategy, we again use High/Low options. This time however we are betting that if an asset price breaks through its previous day’s high or low, the price will then experience a large short-term push in the same direction.

How it works

The strategy hinges on the concept of support and resistance. These are levels that, in the case of support, a price struggles to fall below or, in the case of resistance, it struggles to rise above.

Technical analysts have observed that when a price does breach either of these levels, it often suddenly picks up momentum and moves further and faster in the direction of the break.

This is usually because a lot of other traders – range traders in particular – use support and resistance levels to set stop losses so they can automatically exit trades as they move out of the money. A surge of fresh orders often also enters the market at this point, pushing the price further in the same direction.

Binary options can take advantage of this phenomenon by keeping track of the highest and lowest points a price reaches within a single day. The following day they then wait for it to touch these levels again.

If, for example, the price breaks through the previous day’s high (its resistance level), a binary options trader would buy a High option with a short maturity of typically five minutes to bet that the price will be higher when the option expires.

If the price breaches the previous day’s low (its support level), the trader would buy a Low option, again with a short maturity, to bet that the price will be lower when the option expires.

How to trade the strategy

  • First, choose an underlying asset to trade. Because this strategy depends on trading having paused overnight, avoid 24-hour markets like foreign exchange. Indices, shares or commodities tend to work well with this strategy.
  • Next, identify the previous day’s high and low. You don’t usually need any complex indicators for this – it should be clear from a simple price chart.
  • If prices have ‘gapped’ overnight and the opening price on the morning of the day you will trade has already broken through the previous day’s support or resistance levels, do not use this strategy.
  • This strategy relies on fast action, so prepare in advance what option you will use. It tends to work best with short time frames, so you want a short-term option with a five-minute expiry. Use a High option if the previous day’s High/Resistance level is breached, and a Low option if the Low/Support level is breached. If you use Japanese candlestick charts, it’s a good idea to wait for a second candle to form that confirms the breach and lets you know there is decent momentum forming.
  • As before, decide how much capital you want to risk on your trade. Our lesson on money management for binary options will help.

Example trade

Germany’s DAX30 index achieves a high of 10.800 and a low of 10.680 on Monday. On Tuesday morning at 10.30am, it breaks the 10.800 level and quotes at 10.803. You buy a short-term High option with a five-minute expiry.

At 10.35am, the DAX30 quotes at 10.823 and your option expires in the money.

Summary

So far you have learned that:

  • there are 3 common strategies to trade binary options: a short term ‘Boundary In’, a long-term, surprise event, and a short-term Breakout strategy that uses the previous day’s high and low
  • these strategies are based on real market dynamics and they repeat over again across different markets
  • you can apply any of these strategies with the right practice and preparation

Binary Options Trading Strategy – Best 60-Seconds Strategies

Today we are going to share our binary options trading strategy with you. This strategy is designed to help you identify whether you’ll like trading binaries and teach you how to trade binary options the right way. If you prefer to play it safe over gambling, you’ll need a strategy or tactic to help you master binary options and other trading activities. This is where our TSG team comes to the rescue. We will provide you with the best binary options strategy.

The main reason we’re interested in learning about trade binary options is the fact that binaries simplify what we’re already doing in Forex. At the same time, binary options also allow us to make more money in the process. We are also controlling the risk.

Binary options are easy to understand. This is coming from someone who has little or no experience in the area. If your favorite approach to trading forex is to jump in on a fast price movement and ride the intraday trend for as long as the momentum lasts, you can learn how to make money trading binary options very quickly.

When we first discovered binaries, the light bulb in our heads turned on. We figured out the same thing that we’ve been doing in Forex can be done. But walk away with 75%, even 95% winning trades because we only needed to get the direction right. No need to worry about how many pips we could grasp in the process.

And that, my friends, is the real beauty of binary options.

What are Binary Options?

Binary options are a form of derivatives that have a fixed profit or loss. Trading binary options is simple. All you need to do is ask yourself a simple yes or no question. Will the price of the underlying asset be worth more than the strike price at the expiration date?

Now, let’s start by understanding how binary options work.

Essentially, we can trade binary options for any type of instrument. Whether it be commodities (Gold, Oil or Silver), Forex exchange currencies (EUR/USD, GBP/USD or USD/JPY), or stocks (Amazon, Tesla or Twitter).

So, the first thing you need to decide upon is to select the asset to trade.

Second, before submitting our trades, each of these instruments has a current value at any given point in time. How to trade binary options depends on our trading skills. It is used to predict where the current value will be some time in the future. In other words, we must use our skills to predict the market direction. This will determine our success in trading binary options.

The market can only go up or down. If we believe the current value will go up in the near future, then we buy a Call option. On the other hand, if we believe the current value will go down in the near future, we buy a Put option. Read more about call options vs put options.

Third, we need to determine what the most critical aspect of trading binary options is. The expiration time will ultimately determine if you’re making a profit or not.

Trading binary options require you to correctly forecast two things:

  1. Whether the market will rise or fall.
  2. Your forecast needs to be accurate during a certain time frame – called the expiration time.

If you’re right on the market direction by the time of the expiration time, you earn a profit. Being wrong means you incur a loss. The way binary options works is that if you’re right on the market direction, you’ll get a percentage of what you initially invested in.

Typically between 75% and 95% and in some cases, even 100% of your initial investment, depending on your Binary Options Broker.

Supposing we’re wrong on the trade, then we’re going to lose the whole amount invested in the short term.

We have made a nice infographic that highlights the four steps on how to master binary options trading.

Now we’re going to focus on step two, which is how to predict the price movement. If you manage to figure this out, then knowing how to make money trading binary options will be a piece of cake for you.

Now, before we’ll outline a method on how to make money trading binary options, we always recommend taking a piece of paper and a pen and take notes on the rules of the best binary options strategy.

In this demonstration, we’re going to look at the buying Calls.

The Best Binary Options Strategy

Our team at Trading Strategy Guides is ready to share with our beloved trading community our 60-second binary options strategy. We don’t just hope this strategy will make you money, we’re certain it will. The mathematical model behind this binary options trading strategy has a proven market edge.

The only tool you need to trade binary options successfully is the RSI indicator.

Even the RSI indicator is not good enough if it doesn’t have the “right” settings. The RSI default settings need a little bit of adjustment if you want to master the 1 minute time frame. We use a 3-period RSI to trade binary options profitably.

Naturally, a lower RSI period means that the indicator will tend to be noisier than normal. But it is more responsive to the immediate price action. Along with the RSI settings adjustments, we also played around with the overbought and oversold readings. We found out that by using an 80 RSI reading for overbought and 20 RSI reading for oversold condition, we get more accurate day trading signals.

*Note: Make sure you adjust the RSI settings before you jump into the binary options trading strategy.

By changing the RSI overbought and oversold line, we have eliminated the noise. So now we’re ready to highlight our binary options step-by-step guide:

Step #1: Find an instrument that is showing a low the last 50 candlesticks. Use the 60-second chart (1 Minute TF)

The 1-minute binary options or the 60-seconds time frame is the best chart for trading binary options. In other words, the best binary options expiration time is the 60 seconds time frame.

We recommend highlighting the starting point on your charts. And the ending point of your 50-candle low that you have identified. Simply draw two vertical lines on your chart through the starting point and ending point of your 50 candle low.

When you count the 50 candle low, you should always start from the current candle. Then go from the right side of your chart to the left side of your chart. If you manage to count 50 candle low, obviously the starting candle point will be your 50 candle low.

Moving forward, it’s time to put the RSI indicator in use and spot if we have extreme oversold reading or not.

Step #2: At the moment the 50 candle low develops, we need an RSI reading of 20 or below

Since this is a reversal trading strategy we need the RSI indicator to show a bullish reversal signal. An RSI reading below 20 shows that the market is in oversold territory and it can potentially reverse.

In our example below, the 1-minute EUR/USD chart is satisfying the two conditions.

Keep in mind that in order to move to the next step, we need the 50 candle low. We also need an RSI reading below 20 to happen at the same time.

We added one more factor of confluence that needs to be satisfied. If used in conjunction with the previous two conditions, it will make you a money maker binary options trader.

Step #3: Look for a bullish divergence to develop between the RSI indicator and the price.

When trading reversals, you need to be as precise as possible. The more confluence factors you have in your favor the more accurate the reversal signal is.

What we need to see here is for the price to continue moving lower after the 50 candle low was identified. At the same time, we need the RSI indicator to move higher in the opposite direction.

If the price moves in one direction and the momentum indicator moves in the opposite direction, it means they are diverging from each other. This signals a potential reversal signal.

Now it’s time to highlight how to find the right entry point for the binary options trading strategy.

Step #4: Buy a Call Option after the first candle that closes above the high of the 50 candle low

The first thing you need to do is to mark on your chart the high of the 50 candles low with a horizontal line. The first candlestick formation that breaks above this high is your trade entry signal to buy a 60-second Call option.

It’s that simple!

After you decide the amount to invest and pick the 60-seconds as your expiration time, it’s time to sit back and wait 1 minute before hopefully collecting your profits.

Step #5: You collect your profits if the next candle closes higher than your trigger candle

If at the expiration time, the price is higher than the price you opened your Call binary options, you’re lucky because you’re about to check-in a big payout.

For example, if you’ve invested $1,000 and your binary options broker offers you an 85% payout, it means that you accurately predicted the outcome of a trade. You get back your initial investment of $1,000 plus the 85% payout which in our case is $850 in profits.

If you want to buy Put binary options, use the same binary options guide, but in reverse.

Conclusion – Binary Options Trading Strategy

Before learning how to make money trading binary options you need a great Binary Options broker. You can’t start hitting home runs right out the gate without making sure you have a binary options broker who wants you to succeed. Secondly, you need a strategy based trading technique to reveal the market direction. You only need to forecast if the price will be up or down during the next 60 seconds, making it very convenient.

We use a heuristic approach to speculate on which way the price is going to move during the next 60 seconds. At the end of the day, traders are looking for a reliable binary options system that will help them make money from trading.

The good news is that the best binary options strategy is exactly that system. Our team is built of many traders with experience in the industry, including binary options traders who know how to make winning trades. We’re ready to help you with every step of the way.

Thank you for reading!

Also, please give this strategy a 5 star if you enjoyed it!

Don’t forget to read our guide on regular options trading for beginners here.

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Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Broker 2020!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Get Your Sign-up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

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