Having a Binary Options Strategy is one of the most crucial thing: it’s essential if you’d like to earn profits, and not losses. In fact, the Binary Options as all the other financial instruments available for Traders, are not gambling. Always remember that Trading is like a Job: no matter what you are gonna trade (Stocks, Currency Pairs with the Forex Market, CFDs and so forth), you must take it seriously. Specially because when Trading you’re risking your money, not the money of other people (Unless you are a Bank, of course). It means that if you trade without a logic, therefore without a Strategy, you will surely lose your money.
In our case, the Binary Options, we have an edge on the financial markets: in fact even if you don’t know anything about Binary Options, you will have a 50% of chances to win your Trades. It’s difficult to find another financial instrument like Binary Options, that has the same features. Because not only you will have the 50% of chances (Like when you toss a coin), but you will always know since the beginning how much you could earn and how much you could lose. It’s quite different from trading with Stocks or trading with currency pairs in the Forex market: even before investing the money, you will know your potential profits and potential losses.
Whereas in the Forex Market and in the Stocks Market, your potential profits will remain unknown to you until the end of the trade. Your profits will entirely depend on the variation of the prices of the selected Asset. With the Binary Options you will know the “Payout” (A.k.a. The profits, the return on the investment done): that is a percentage on the investment made on a Binary Option. For example, the average Payout is around the 70-90% of the capital invested; thus if the Payout for a Binary Option is 80% if you invest 100 EUR or $100, your profits will be 180 EUR or $180.
WHAT IS A BINARY OPTIONS STRATEGY
Now, let’s dive into the “middle of the action”. As we’ve stated above, having a strategy is essential, is vital, when trading with a financial instrument, Binary Options included. It’s true that you will have the 50% of chances since the beginning, and that the risk is fixed but why not increasing the percentage of success to the 70-80% or even more? The greater the percentage of success, the greater your chances of earning profits (And not losses).
For this reason, everyone should use a proper strategy to Trade Binary Options. Using a strategy, will improve your Trading Activity without doubts and you will avoid heavy losses. All the strategies crafted for Trading, are based on a simple golden rule: increasing the profits, cutting the losses. A simple but very effective rule that will save you from countless losses and headaches. It doesn’t matter what strategy you will use, but you must use at least one strategy and be always sticked to it. Every strategy has its own set of rules, that you must follow: otherwise why are you using a strategy?
If you are a “beginner” in the world of Trading, you should start with a simple strategy. Find one or two strategies that suits your needs, test them and then choose the best one. Always try a strategy before you start using it with your money: backtesting is the key and by doing this, you will be able to improve the strategy too.
So, let’s sum up the main features of a strategy:
- Based on the golden rule: increasing profits, cutting losses
- Always test a strategy, if possible without using your money (A Demo Account would be perfect)
- A strategy can always be improved through some good backtesting
- Start with one Strategy, specially if you are a novice Trader
- You can even create your personal strategy, after that you’ve learned the basics
- A strategy normally is composed by Indicators and Oscillators, and Technical Patterns
- You can even buy Strategies if you’d like: but be always sure that it was backtested and that it works
BINARY OPTIONS STRADDLE STRATEGY
Now that you’ve understood what a Binary Options Strategy is, we can now introduce and explain what is the Binary Options Straddle Strategy. This type of Strategy, is one of the easiest that you can use for Trading the Binary Options. In fact is one of the most used strategy by novice Traders, because it’s simple to understand and easy to apply.
The Straddle strategy is a way to increase the chances of success of your operations with the Binary Options. It’s a way to both increase the profits and cutting the losses. This because normally, when you invest on a Binary Option you can only choose one direction for the price of the Asset: Up or Down (Of course, this strategy must be used with the High/Low Binary Options, also known as Call/Put Binary Options).
Therefore the price of the Asset must move in the right direction, the one that you’ve chosen before. If I believe in a raise in prices, I will select the “Call” Binary Option: of course, I will earn the Payout only and only if my prediction will be right (If the price of the Asset will increase after the Expiry Time). Otherwise, I will lose the money invested on the Binary Option.
Here’s where the Straddle Strategy works: using this Strategy, you could cover both directions (Up & Down, the raise and the fall in prices). Although you cannot select both Put and Call Option in a single trade, you can cover both side of the market using this strategy.
Said in other words, to “straddle” means to cover both sides. In our case, both movements of the price of an Asset: up and down. Therefore you will need to buy 2 different Binary Options, related to the same Asset but with a different prediction for the price movement. Here’s the trick: by doing this, one of the Option will always be a profitable trade. In fact, if for example the price of an Asset (Let’s say Apple’s Shares) is $95.00, the price after the Expiry Time (1 hour for example) could be higher (As $95.78) or lower ($94.65). It means that you will always earn a profit, no matter what.
But of course, you have to choose carefully the Expiry Time of the two different Binary Options: here’s lying the key of success for this Strategy. You can’t choose the same Expiry Time for both Options: otherwise, you will lose money. Why? Because the Payout for a Binary Option, is always under the 100% of the amount invested: normally the average for the High/Low Binary Option is 70-90%. Thus, if I invest 100 EUR, I will earn as profits from 70 EUR up to 90 EUR (Plus the 100 EUR invested at the beginning). And you can easily understand, that if you invest 100 EUR on a Call Binary Option and 100 EUR on a Put Binary Option, only one of the two Options will be successful and therefore you will earn only one Payout (That it would be, in case that the Payout is 80%, 80 EUR). So:
- The Call Binary Option is successful: +80 EUR
- The Put Binary Options is not successful: -100 EUR
This is an example: it can be the opposite too (The Put as successful, the Call as not successful). But the concept is the same: you will have a loss of 20 EUR.
So, how can we properly use the Straddle Strategy?
The answer is easy, more than you could imagine. The most important thing is that you have, or better saying must, choose two different Expiry Times. For example, you can choose for the first Binary Option an Expiry Time like 30 Minutes. Whereas for the second Binary Option an Expiry time of 15 Minutes. Of course, the two Binary Options must reflect two different predictions: Call and Put (Raise and Fall in prices).
Normally you have to invest more on the Binary Option with higher chances of success. While, for the Second Binary Option (That we repeat again: you must open with a different Expiry Time and in a different moment, not just immediately after the first one) that has less chances of success (But has still few chances), a smaller amount. In this way, the profits of the First Binary Option will cover the potential loss of the Second Binary Option.
- First Binary Option: A Call Binary Option with a Payout of 80%. Amount invested: 100 EUR.
- Second Binary Option: A Put Binary Option with a Payout of 75%. Amount invested: 50 EUR.
These are the possible outcomes:
- The Straddle Strategy succeeds: both Options are successful. 80 EUR from the first Payout + 37.50 EUR from the second Payout. Total = + 117.50 EUR.
- The Straddle Strategy doesn’t succeed: the first Option is successful, the second one not. 80 EUR from the first Payout – 50 EUR of loss from the Second Binary Option. Total = + 30.00 EUR.
Of course, you must read the charts and analyse the price movements: you can’t just toss a coin and then choose an Expiry Time for both Options. Otherwise the Strategy wont’ be profitable. This Strategy is especially used to speculate on short price movements within a Trend: for example, if the Primary Trend is an Uptrend you can invest on a Call Binary Option for the long-term. Whereas you can speculate on the short variation in prices, such short downtrends, by investing on Put Options.