When you start binary options as a beginner, once you get the basics of technical analysis you will have to define which digital options strategies you want to use to place your trades. You will find on the Internet dozens and dozens of binary options strategy, sometimes simple, sometimes very complicated. In this article, we will go through the most common and the most basic techniques that are ideal binary options strategy for dummies.
As a trader, you will probably try to find the holy Grail of binary options strategies, the one that will allow you to win almost every time. Guess what, it does not exist. It’s true that some will be more effective than others. But sooner or later the market will start to change its usual behavior and it won’t work anymore, at least for a while.
Contrary to what you might think, a good strategy is not necessarily a complicated one. Even if I said it as a joke, the following is true: to make money in binary options you have to click on the green arrow when the market goes up. And on the red arrow when the market goes down. And if the market goes too much up you have to make calls and if the market goes too much down you have to make puts. This is of course easier said than done. But based on this, three main strategies can be effectively used by beginners to get decent success rate (around 55/60%).
Binary options strategy one for dummies: follow the trend
Follow the trend, or trend surfing, is one of the easiest binary options strategies to implement for a beginner. When the market is not ranging (when the price bounce between Bollinger bands that are more or less parallel), it is trending. It means the price is going up or down. Of course this movement is not regular, it is choppy. When the market is stable the price will bounce on the Bollinger bands.
The strategies are the following : if the market is trending up you will place calls when the price hits the lower Bollinger band. If the market is trending down you will place puts when the price hits the upper Bollinger band. You can of course play the bounce in the other direction, but it is more risk in case of a breakout. Of course, the breakout can occur in the other way to if the trend reverse. But it is less likely to happen.
On the example above we can see that as of 11:55 USDJPY started to trend up. When the middle Bollinger band was broken, it found support on the drawn line. The trend lasted around 1 hour and a haf, then it broke.
A word of caution
If this strategy is relatively safe, it doesn’t mean that it is bulletproof, of course. Sooner or later a breakout will occur. Here are the things to watch out:
- When implementing such strategy you have to keep an eye on the news (whether it is a planned news, such as a central bank announcement or release of important economic data. Or live news such as Mr. Trump announcing tariffs. Because this is the kind of event that will completely change the price action that seemed so far to oscillate like a metronome.
- Resistance and support levels: there are some lines that will appear on charts that will act like support and resistance levels. Whether it is a moving average, a previous high or low, a psychological level (such as a round number, like 1.2 for the EURUSD pair) or a line made by connecting previous lows or highs
- Overbought and oversold levels: when a trend accelerates it can reach oversold or overbought territory, which makes the trade to avoid. The RSI or the stochastics will tell you when those levels are reached
- End of hour: this time is tricky for short expiries
Binary options strategy two for dummies: news breakout
I used this binary options strategy with some success. You identify a big announcement in the calendar, such as a central bank rate decision. Very often the market reacts strongly to such news, something that you can use to your advantage on short expiry. The idea is to anticipate what would be the reaction of the market. You get ready and if the price shoots very quickly as you expected, you place your call or put. You can also use a pending order for better entry point (and rely less on your reflexes).
This said it is more tricky to implement than the first binary option strategy for dummies, because sometimes the market can quickly change his mind and the trend goes in the other way (“buy the rumor, sell the news”). I would therefore advise you to be more cautious with this one if you don’t trade with a digital options demo account.
Binary option strategy 3 for dummies : Bollinger bounces
This strategy is very similar to our binary option strategy 1 for dummies. The difference is that instead of trending, the market is ranging. It means that the price bounces more or less on the higher and lower Bollinger bands, which are almost parallel. The strategy is very simple: when the price hits or goes slightly further the upper or lower Bollinger band, you take a trade in the opposite direction. Here you can place puts and calls each time the higher or lower band is hit. You don’t need to worry about resistance or support levels since the market is flattish. This setup occurs mostly when the markets are quiet, that is to say during the night/early morning or late in the evening (GMT).
Last advice to conclude
Before trading with substantial amounts, take the time to observe charts and price action. With a bit of experience you will start to see patterns emerge and use them at your advantage to define a binary options strategy that fits to your trading style.