One of the biggest reasons binary options appeal to traders is because the contracts are easy to trade. After you register an account with a legitimate broker and make your first deposit, you can execute trades with a few mouse clicks. But there’s a dark side to the simplicity: beginners often jump in without a strategy. For them, trading binary options is akin to betting on black at roulette. We’re going to show you how to produce a profit trading binaries with a bullish and bearish strategy.
First, let’s get a couple of definitions out of the way. A bull market is one in which an asset – or the market in general – is experiencing an upward price trend. An example is gold, the price of which has been climbing for the past 10 years. A bear market is one in which an asset is going through a downward price trend. You could argue that the U.S. dollar has been in a bear market for the last several years.
The most important thing to remember is that you can make a profit trading binary options with a bullish strategy or a bearish strategy. In other words, it doesn’t matter which direction the prices of the underlying assets move. The only thing that matters is whether you’re able to accurately predict the direction.
With that in mind, let’s take a look at how to use a bullish binary options trading strategy to turn a profit. Note that it takes more than just a gut feeling.
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Trading Binary Options With A Bullish Strategy
A bullish price trend can affect stocks, indices, commodities, and currencies. You can take advantage of it in a couple of ways.
- The simplest way to profit from an uptrend in an asset’s price is to invest is a call option for that asset. With this type of contract, you are essentially forecasting that the asset’s price will rise above its strike price. (The strike price is the asset’s price at the time you purchase the contract.)
- A second way to ride a bullish trend is to use a touch binary option. Here, you’re predicting that the asset’s price will climb to, or “touch,” a specific price level before your contract expires. One quick suggestion: if you suspect the price of an asset is going to rise, but have no idea regarding how far it will do so, use a simple call binary option. A touch contract can result in a loss even if you make an accurate call on the direction of the asset’s price.
There are several factors that might indicate the price of an asset is going to move upward. But nothing should be considered an immutable “law of trading.” Many of the signals used by experienced traders are open to interpretation. Having said that, a lot of traders plot pivot points, a technical analysis method that uses past trading activity to predict future support and resistance levels. (We’ve discussed pivot points in detail elsewhere.)
Support and resistance levels reflect prices that are considered significant by traders. Support levels act as a type of “floor.” Resistance levels serve as a kind of “ceiling.” If the price of an asset descends through a support level, it could signal a pending uptrend. The price may turn around on its way to establishing a short-term bullish market trend. If you observe an asset’s price breaking its support on a downtrend, consider executing a call option in anticipation of the turnaround.
Use http://www.fastbinaryoptions.com/binary-options-demo-trading/ as a demo trading guide to help you decide on the strategy you’ll use for your success.
Making Profitable Trades With A Bearish Strategy
Much of what we’ve discussed thus far with respect to bullish price trends is applicable to bearish price trends. To wit, profiting from binary options using a bearish strategy involves making trades in anticipation of a decline in an asset’s price. The simplest contract to use to take advantage of the decline is a put option. It’s a bet that the asset’s price will fall below its strike price prior to expiry.
You can also execute a touch option to profit from a bearish market sentiment for the asset. Here, you’ll be using the mirror opposite of the touch option we described earlier for a bullish strategy. Instead of the contract being based on a prediction that the asset’s price will climb to a specific price level, you’re forecasting that the price will drop to a certain level.
As I mentioned above, it’s a good idea to stick with a simple put option rather than use a touch option. That is, unless you have good reason to believe a particular price level will be reached prior to your contract’s expiry. Otherwise, it’s too easy to lose money while making an accurate call on the direction of the asset’s price. There’s little justice in that.
Now, let’s talk about support and resistance levels in the context of using a bearish strategy with binary options. Recall from earlier that a support level for an asset’s price can be used to signal a pending uptrend. Resistance levels can be used in the same manner. Suppose an asset’s price climbs toward its first resistance level. Instead of leveling out, it pierces the barrier. Many traders interpret this to signal the price is about to reverse direction. By executing a put contract, you can take advantage of the downtrend and any momentum that builds behind a bearish sentiment.
It bears repeating that signals of market trends are based on interpretation. This isn’t physics. Having said that, many of the signals traders have grown to trust have proven to be relatively reliable.
Bullish Vs. Bearish Strategy: Which Is The Best Option?
We’ve discussed how to make money with binary options when the price of an underlying asset is both rising and falling (by executing calls and puts, respectively). But we’ve managed to sidestep picking one strategy over the other. So, which approach is best when trading binary options?
In truth, neither. Assuming you are not emotionally invested in the direction of the underlying asset’s price movement, you don’t care whether the price goes up or down. Nor do you care particularly about the extent of its climb or fall (unless you’re trading touch/no touch options). The only thing you care about is whether you’ve been able to accurately predict which direction the price will move, and whether it will move in that direction before your contract expires.
If that sounds slightly mercenary, welcome to binary options trading. If that resonates in you, and you’re willing to learn how to identify signals of price trends, there’s a good chance you’ll do well. Click here to learn 5 Binary Options Warnings
Going With Your Gut When Trading Binary Options
It’s worth adding a quick comment about the shortfalls of technical analysis. Prices can, and do, act unpredictably. Even if every technical indicator points to a pending downward price trend, the price of an asset can stubbornly refuse to fall. Conversely, a price can continue to drop despite every indicator signaling a pending rise.
There’s a lot to be said for trusting your instincts. After you’ve gotten some experience trading binary options, you’ll develop a “sixth sense” about the prices of the assets in which you specialize. Don’t ignore your gut, even if it is telling you something that is inconsistent with your pivot point calculations and other technical indicators. There’s a good chance your instincts are leading you in the right direction.
To summarize, there is a substantial degree of risk with trading binary options. It is not like buying shares in an index fund. Having said that, it is possible to create a trading strategy that consistently generates a profit over the long run. Learn how to identify signals that indicate potential price movements. Then, use a bullish binary options strategy to take advantage of the uptrends and a bearish binary options strategy to profit from the downtrends.
This time next year, you could be looking at a dependable second source of income.
Use this youtube.com video to see an example of a bullish vs. bearish market