Binary Options Strategy Part 1: Breakout Trades
Before you going diving in making wagers at a binary options site (or anywhere else for that matter), you need to decide on a general trading strategy. What kind of trader do you want to be? What type of time frames do you want to concentrate on? Take my advice and do not try and be every kind of trader in every kind of time frame. This will ruin your focus and your results will look just as scatterbrained as your approach.
Your general approach is your strategy. This page is the first of a three-part article discussing binary options trading strategies. Trade entry and exit rules are what make up the details of your system within your strategy. Whereas a strategy is a general approach, a system is a set of exact rules for making trades.
There are really only three different types of trading strategies:
• Breakout Trading
• Trend Trading
• Reversal Trading (also known as Pivot Trading)
Breakout trading and trend trading are similar, except that trend traders are late to this party from a breakout trader's perspective. Very often the breakout trader is closing his position for a profit by selling it to a trend trader. He is then off to find another breakout somewhere.
Take a good look at the breakout on Apple stock in the chart above, because that pattern is going to be your best friend if you want to be a breakout trader. This is a daily chart for a 1-year period of time, but the breakout pattern is valid for any time-frame. Day traders and 3-day position traders see the same setup (with the same results) all the time on 5-minute charts or hourly charts. The market doesn't matter either - this pattern is just as valid in currencies, gold, indices, or individual stocks.
The key to the breakout trade is volume. See the volume spike where the breakout occurred? That makes it a heck of a lot more reliable. Breakouts with no volume spike should be avoided. Sometimes there is only a small volume spike and that's where you have to make a judgment call.
A breakout pattern requires a trading range from which to break out of. If there is no range then there is nothing to break out of. Reversal traders will be betting against the breakout at the edge of the range. Once the breakout occurs (on high volume) the breakout players get on board and that - along with all the reversal players covering their positions - fuels the rocket that you see above.
A breakout wager can be made by betting on a No Touch back in the range, a Bull Expiry, or a One Touch above where the breakout occurred. If the breakout fails and the chart goes back into the range it's time to close your position if you used a 1-touch or an expiry bet.
A breakout is often the beginning of a trend. In part two of this article we will look at trend-following strategies.
Disclaimer: The information on this website is for entertainment purposes only and is not to be taken as financial advice. Always consult your professional financial advisor before undertaking any investment or trading plan. In some jurisdictions, financial betting at at binary option sites might be considered online gambling and therefore be deemed illegal, so check with your local laws first. There is risk associated with trading or financial betting and you can lose money. Proceed at your own risk.