Binary Options have become a buzz term in the financial industry. Since their first introduction as a retail trading product in 2008 they have been billed as the simplest way in which to trade and profit from financial markets.
To a large extent this is true. They cut through the often complicated jargon that is often associated with many types of financial options and provide a simple product which offers low barriers to entry. This has made them particularly popular with those people who are looking for an easy way to generate a second income online.
However while the trading method provided by digital options is simple, you should not make the mistake of thinking that profits are easy to come by. In order to make a consistent return from your trades you will still need to apply logic and dedication to your analysis. Binary Options contracts only simplify the process; they do not provide a route to easy money.
At the heart of every successful investment approach, whether it makes use of stocks or property, the use of online binary options is a winning formula. This will govern the way in which you trade and will allow you to find consistent opportunities which can be used to build your profits.
Below I take a look at some simple steps to creating a line of attack when trading with binary options. These will help to get you started in formulating your own strategy with which to profit from binary options.
Select A Market
There are a great many markets that can be traded through an account with a binary broker. You will have access to all of the major asset classes including Stocks, Forex, Market Indices and Commodities. Each of these has its own unique trading characteristics and dynamics.
When you research your binary options methodology, you should think about what you are trading. Look for a market that you can easily gain information on and track. You don’t have to trade on every available market in order to make money on your account. In fact it is far better that you become familiar with just one or two options.
Also try to stick with a market that interests you. For example if you are a keen follower of developments in technology then tracking the news and announcements of Stocks such as Apple, Microsoft and Google may prove a good option. You will probably already have access to information about their latest and upcoming product releases which will help when it comes to forecasting likely movements in their pricing.
Determine Your Entry
At the heart of all strategies is the ability to pick out the best time to enter the market. You may anticipate that the price of an asset is going to move higher, but is now really the best time to buy?
Most traders of binary options will make use of some form of technical analysis to provide them with a signal to enter the market. This involves making use of a chart to identify the best time to buy or sell. Technical analysis uses indicators to help ‘read’ the chart and it is sufficient to use just some of the basic indicators such as the Moving Average and Relative Strength Indicator to help you identify times to trade. These can be used to alert you to the direction that the price of an asset is most likely to move or when it is overbought or oversold.
Remember, as regards to binary options contracts you only have to forecast if the price of the asset is going to move higher or lower. This makes it much easier to come up with simple strategies using just the basic indicators that highlight the most likely path of the price action.
Formulate A Risk Plan
An often overlooked but vital part of any serious tactic is the way in which it manages risk. Even if you have a plan which can identify good opportunities to take you need to control the level of risk. There is little point in being able to predict 9 out of 10 moves correctly, only to see the tenth opportunity destroy your returns. The amount of risk taken versus the reward on offer should be such that your plan can cope with the occasional loss.
It is also important that you don’t overexpose your account by risking too much money. New traders tend to get drawn into using too large a percentage of their available assets on an individual trading position. This is of course fine when the opportunity finishes in-the-money. However if they lose then it can create a mountain to climb in terms of recovering their loss.
A good rule of thumb is to restrict your binary options system to use no more than 5-10% of your available money for each position you take. This will make is easier to recover from any losses and still allow you to make good profits on your account whilst protecting your assets.
Test Your Plan
This may seem an obvious point but it is nevertheless an important one to highlight. You can open a free demo account with a binary broker and you should use this opportunity as a test bed for your underlying system.
Trading with a demo account will allow you to make use of real market pricing and will let you track your performance without putting any of your money at risk. This provides the chance to check out the approach you choose and make any type of refinements that are needed.
Make use of this facility for a few weeks and then constantly check on the performance that you achieve. If you are happy that your particular approach works you can then consider switching it across to your live binary trader account and trading it for real.
Note: This article was written by contributor Philip Moore