Fans of binary betting often cite the fast pace of the markets with constantly re-quoted odds as one of the most attractive elements of this trading style. A fundamentally straightforward way to trade, binaries are certainly not without their difficulties, and for all the excitement and thrill of the fast moving binaries market place, having a clear and defined strategy to see your way through the melee is an essential component part for anyone looking to guarantee the best chances of success.
A binaries strategy, like the instrument itself, need not be too complicated in order to generate results. In fact, binary strategies often look towards the sum of a number of different trades in order to generate results, even if that means absorbing a 90% loss rate on the sheer number of trades you make – so long as your strategy works to deliver an overall profit, it is effective, and worthwhile pursuing on an ongoing basis.
Some of the most common strategies in any type of binary bets are both simple to understand and execute, and strive to deliver nothing more than an element of organization to the party. Binaries betting, as with all forms of trading, is essentially a game of numbers, and in playing the probabilities and odds in a calculated and common sense way, within the guidelines of your own defined strategy, you should notice an improvement in the frequency and scale of your winnings.
Strategies are highly individual, and even though there are certain commonly executed trading styles, it comes down to the individual trader to determine the method of trading that best works for them. While that might sound a little vague as a proposition, be under no illusion as to the impact a strategy can bring to your trading success, particularly if you’ve been trading on an ad hoc basis until now – by implementing some kind of plan to underpin your trading you will ultimately yield better results over both the short and long-term through your binary betting.
Going Long with Binaries
Perhaps the most common of all trading strategies, and one that is often closely associated with binary betting is going long. Going long can be defined as taking a positive perspective on market movements, and looking for patterns and indicators that suggest prices are likely to rise. On this basis, traders buy their binaries in the underlying market on the assumption that the index will rise over the course of the hour, day or week’s duration of the bet, following on from their research and interpretation of market performance.
When going long with binaries, you are backing the proposition that the market will rise, and you are looking to take profits at a rate of 100. Remember that binaries are always settled up or down at 100 or 0 respectively, with the profit portion in this instance lying between 100 and your buy rate, multiplied by the initial stake amount you’ve put down on the transaction.
Of course, some binaries make for more attractive long options than others. The worst kind of binary to back with a long strategy is the one that is priced too highly to represent good value. Binaries quoted in the 90s might represent an almost certain result, but given the volatility of the markets and your potential exposure to risk in this instance (often as much as 90 times your original stake), the rewards may not prove sufficient to tempt your bet.
A far better strategy is to trade on the basis of your own research and interpretation of market figures, including looking at analytical data, to form opinions that look at markets that are moderately likely to rise. Remember that one wrong trade doesn’t matter, so long as you’re collectively in profit at the end of the day, and with strong and well reasoned analysis combined with an understanding of figures and an ability to think smartly about how heavy to trade certain positions, you should be able to identify a sufficient number of profitable trades to make it worth your while.
Going long is a largely positive strategy, and can help narrow the scope of your focus as a binary trader. By understanding your markets and putting in the necessary research work behind the scenes, going long can be a particularly effective and straightforward strategy for establishing yourself as a successful binary trader.
Going Short with Binaries
The converse of going long, going short is a strategy that can help filter out the bulk of the market noise to focus your efforts as a binary trader. Going short essentially means you’re forecasting markets to close downwards on the duration of your bet, thus you’re looking for markets, commodities and assets that are either overpriced, or showing signs of falling away. Down bets are settled are 0, thus traders calculate their winnings on the basis of the difference between their sell rate and 0, multiplied by the stake put down on the transaction.
Going short as a strategy requires traders to identify markets that are likely to suffer from a decline in pricing. Unfortunately however, many of the obvious picks are already known to the brokers who set the odds relative to market conditions, and it’s essential that you remain one step ahead in order to pick bets where the risk to reward ratio makes it worthwhile.
Sure-fire down bets always pose a smaller percentage chance of a massive loss, whereas moderately likely outcomes weigh up much more evenly – thus, getting a balance between different trades and odds is very worthwhile as far as diversifying your binaries portfolio is concerned. While it might seem logical to scalp a few small profits here and there, the impact of one losing trade on your profits can be so severe as to significantly hamper your trading success, so going short requires a more considered and measured approach in order to determine the most successful course of action.
In identifying opportunities for going short, you should be concerned with instances where markets are likely to fall, often as a response to external market factors or other indicators. While straight forward down bets might not always pose the best value for money in the sense of weighing up odds to risk, handicapped bets or even shorter-term bets might offer better odds, assuming you’re sufficiently well read-up to take advantage of these opportunities.
Reversal Strategy with Binaries
A particularly clever and cost effective strategy that can be employed with binaries trading is known as reverse trading, or employing a ‘reversal’ strategy. Reverse trading is the process of backing a market in the reverse, when all odds and price indications suggest it might move in the opposite direction, the theory being that the low cost of reverse trading affords multiple trades to be effected with potentially massive winnings from the odd trade that does double back in favour of your binary position.
This is perhaps best illustrated in the following example. The FTSE 100 is looking to be a strong performer on the day, with spreads quoted 89-94. This spread would suggest that the market is likely to close up on the day, after a prolonged period of strong trading. The reverse strategy position here would see the trader, on speculating that the market may be overpriced, to plump for a ‘sell’ at 89.
If the market rises, as it seems it might, the trader loses at 11 times his stake (100-89), or £110 assuming a £10 stake amount. However, if the market takes a turn for the worse (i.e. the market was overpriced at the point the odds were quoted and begins a correction by the end of the day), the trader has paved the way for an £890 gain.
That essentially means the trader can afford just a 1 in 8 success rate with this kind of strategy to make a profit – if 1 transaction pulls in £890, that is enough to offset £880 worth of loss on markets that don’t move in favour of the trader. Furthermore, when this is backed up by reasoned interpretation of market data, the odds of correctly predicting and identifying likely market movements dramatically increases, thus paving for the way for significant winnings over time.
A reversal strategy is a particularly effective way to capitalize on broad market assumptions. Because markets are often buoyed by optimism, and effectively ‘talked up’ beyond sustainable levels, a rational, calculated analysis of the relevant figures might point to lucrative opportunities in reversing the tide of common opinion through employing a reversal binaries strategy.