Advanced binary options strategy

Advanced Binary Options StrategySo, you think you’ve risen beyond the level of a beginner when it comes to online trading? You think you’re ready to learn more? Then you are at the right place! On this page, we will deepen your knowledge of binary options trading and dive a bit deeper into the tools you can use to earn a profit. Various indicators, oscillators and a few other useful features every decent trading platform should have will be discussed in greater detail here. That way, you will gain a deeper, more advanced understanding of the way market works and be able to more clearly and more quickly identify forming trends. But before that, we will start this advanced binary options strategy guide with something that can very much be applied to current global events. Let’s get going.

BINARY OPTIONS DURING A CRISIS

Due to the recent coronavirus outbreak, it is very likely that the global economy is going to suffer. As a matter of fact, there are already clear signs that many industries are being heavily impacted. So, how to trade during a crisis? Generally speaking, binary options trading is a great haven during such difficult times because you can keep earning substantial amounts of money, often even easier than before.

Given the fact that binary options traders do not purchase actual goods on the market but are only interested in making the right call regarding an asset’s price direction, it doesn’t matter to them if an economy is suffering a crisis or experiencing a boom. They are not buying the asset in question and thus do not need to worry if its price will go up or down. When negative big market events happen, it is easy to acquire information about the causes of market movement because all the media cover them. This makes it a lot easier to choose your binary options strategy and to at least roughly predict how long this situation on the market will last so that you can make a profitable investment. If anything, a crisis helps binary options traders because they know in which direction many prices will move, and that makes it immensely easier to make an accurate prediction. The only thing left for you to do after that is to deduce how long this state of affairs will last.

When you realize an asset’s price is going to fall, you may want to examine how this may affect some other assets. That way, you can adjust your binary options strategy. You see, all market categories are related to each other, so if one of them experiences changes, the others are sure to change, too. If you know, for example, that the dollar will fall, then the right trading strategy might be to check on the oil prices which are directly tied to that currency, as the price of that commodity is probably about to rise. A bearish trend of a currency may also indicate that another currency will get stronger etc. There are many factors to consider when the market is healthy, but during a crisis you know that certain values are going to drop and you know how that will affect other assets, so the chance for your online trading strategy to bring you a significant profit greatly increases.

However, as you probably know full well, this kind of trading is not just about the feeling you have, but there are actual parameters and numbers you can use to support and check your predictions. Indeed, there is a wide variety of such tools at your disposal, and we will divide them here into three different categories. First up – indicators!

INDICATORS

Indicators are pretty much indispensable trading tools for any serious trader. They are essentially statistical representations of the market and the conditions there which can then be used to make a well-supported prediction. However, since the market is so huge, there are plenty of statistical parameters that can be examined and thus many indicators that can be used, too. The number of available indicators is way too big for us to cover them all here, but for this advanced binary options strategy guide, there are a few that fit this skill level perfectly. Read on!

BINARY OPTIONS VOLUME

One of the most important indicators you can use in this type of trading is binary options volume, and it can tell you a lot about an asset’s strength. Binary options volume is an indicator that tells you how much trading is going on on the market, i.e. how strongly traders feel about something. Bigger volume means people are executing more trades and are thus more interested in something. This indicator is best used as a confirmation of strength. The easiest way to look at it is to use bar charts or candles because the volume is most clearly visible there and you can quickly extract the information you need.

However, be careful! When examining binary options volume data, you will most probably be presented with the data concerning only traders who are trading with the same broker as you. In other words, you will not get data about all traders on the market, but you can still make some pretty good conclusions, as general trend lines should still be clearly visible.

If you want more exact information, you should probably check out something like Commitment of Traders. This report is issued every Friday and can help you a lot because it gets you a lot of useful information. If you’re using this report, the advantages of long-term trading become very clear, especially if you’re trading in the second half of the month – in that case, it is recommended that you set your expiration date to the end of the month. This is also applicable if you’re by any chance using the MetaTrader platform. Just set your binary options volume indicator under your chart (hourly charts are recommended for this type of trading) and look for candles breaking the level of medium-high spiking candles.

So, a fairly simple indicator to use. Keep in mind, though, that it’s often a good idea to use multiple indicators to corroborate the results one of them is giving out. Therefore, you should have a pretty firm grasp on how every indicator functions, which is why this whole page will mostly be dedicated to them. Here’s one you can also use.

ALLIGATOR INDICATOR

Bill Williams is probably one of the most famous traders in the world and the person who introduced psychology to trading. The result of his research was a series of indicators he created, with most of them being still very popular today. The so-called Alligator Indicator is probably the most famous among them, and every serious trader should at least have a general idea how it works.

The Alligator Indicator is based on the idea that the market spends most of its time in a relatively quiet state. Only about 15% to 30% of the time will the market trend. To help you determine when is the best time to take action, this indicator uses three smoothed moving averages: the one composed of 13 periods (also known as the Jaw of the Alligator), the one composed of 8 periods (the so-called Teeth) and the one with only five periods (commonly referred to as the Lips of the Alligator). These averages are the three lines you see when you start using this indicator on your chart.

The behavior of those three lines of the Alligator Indicator will show you what you need to do next. If they are a certain distance from each other and moving together upwards or downwards, then you want to pretty much leave things as they are, i.e. the trend you’re riding is going to last. When those three lines start converging, the trend is likely to end soon. However, if the Lips line crosses other two lines while traveling downwards, you will want to start investing in Put options, whereas you should be aiming at Call option if that same line crosses other ones while traveling upwards. And don’t worry; the lines are all in different colors, obviously, so you should easily notice any changes in their behavior.

So, while it may be a tad challenging to get the hang of these three lines at first, using this indicator really isn’t too difficult for experienced traders. And there are more tools that are equally efficient, such as the next one, although this one is slightly more complex.

THE GANN FAN INDICATOR

The Gann Fan indicator is one of several Gann tools any trader can find in most of the trading platforms available nowadays. Named after W. H. Gann, a great trader, this indicator has a very specific principle behind it. The key concept used when trading with this tool are angles, and they help you determine dynamic support and resistance levels and the perfect timing for buying call and put options, depending on the way the market is behaving.

The Gann Fan indicator is made out of nine diagonal lines. Each of these lines is set at a certain angle and these angles represent the ratio between time and price movements. The ideal balance is struck at 45 degrees. The reason why Gann based his theory on angles is because of market geometry and the fact that the events that happen in the market are cyclical. This means there is a certain uniformity to everything you experience while trading. All you have to do with this indicator, essentially, is to find a point at which you want to place it and find it in the tool list of your trading platform. The fan will spread from the point you choose, so it is recommended that you pick a high or a low (depending on the market) for that.

So how does the Gann Fan indicator work? Well, it’s fairly simple. The lines that originate from the starting point you choose represent support and resistance levels. Once the price of your asset breaks one of these lines, the following one takes over the role of support/resistance level (again, depending on the type of market you’re dealing with). This means that you know exactly what the next price corridor is once a certain level is broken, which allows you to trade continuously, without having to recalibrate your predictions. Depending on the market activity, the price will always be at certain angles, and you will always know what its levels are. In other words, no matter what happens, you will immediately know what to expect next.

As you can see, this indicator is a bit more complex, but it can nevertheless be an excellent tool in your quest for profit. Determining support and resistance levels is of crucial importance, and with this indicator, you know exactly where the next limit is once those levels are broken. Therefore, it can save you an incredible amount of time and tell you exactly what to expect next. And since the market is all about numbers, there is another way you can use math to help you out.

FRACTALS

Some people believe that markets are random. However, others argue that although prices may appear to be random, they do in fact follow a pattern in the form of trends. One of the most basic ways in which traders can determine such trends is through the use of fractals. Although it can seem like some complicated and abstract mathematical term, fractals have a very real application in trading: they break down bigger trends into simple reversal patterns, thus making it much easier for traders to conduct their analysis and make a prediction.

Fractals are basically recurring patterns that can predict reversals among larger, more chaotic price movements. They are a nice way for traders to simplify large chunks of charts by breaking them down into simpler and more recognizable pieces. To put it very simply, everything revolves around the moment in which the trend changes and the way the market behaves after that.

Basic fractals are composed of five or more bars, and there are some rules for identifying them. A bearish turning point occurs when there’s a pattern with the highest high the middle and two lower highs on each side. On the other hand, a bullish turning point occurs when there’s a pattern with the lowest low in the middle and two higher lows on each side. So, you essentially get a sort of an arrow composed of the bars on your chart pointing upwards (in the first case) and downwards (in the second). You can also think of it as a kind of “V” (second case) or an upside-down “V” (first case). It’s important to know, however, that fractals belong to the group of so-called lagging indicators. In other words, they cannot be drawn until the reversal has been lasting at least a couple of days. Yes, that is a drawback, but given that these processes often last much longer, this may not pose such a significant problem if you can react quickly enough.

Like other trading indicators, these tools are best used in combination with other indicators or forms of analysis. You can combine them with oscillators or Fibonacci numbers (more on both of those topics later), for example. They are also commonly used with moving averages when they form the so-called Alligator Indicator. The rule is that all buy rules are only valid if below the „Alligator’s teeth“ (the center average), and all sell rules are valid only if above the teeth.

Even though they are quite simple to use, there are still some things every trader should be aware of when using fractals. Firstly, as they are lagging indicators, they are best used to confirm that a reversal took place. Secondly, the longer the time period, the more reliable the reversal becomes because you have more data to work with and you can see the pattern more clearly. Also, it is always useful to plot them in multiple time frames and use them in conjunction with one another. Using them as the sole basis for making your decision is not recommended – they work best as support tools.

OSCILLATORS

But apart from indicators, there is another group of trading tools you can use – oscillators. As their name suggests, they oscillate between two extreme values and provide information on overbought and oversold levels. Therefore, by using them, you can get a pretty good idea of when a trend is going to shift. And just like in the previous category, there are quite a few of these tools at your disposal. Here’s a bunch of them that can help you out!

ACCELERATOR OSCILLATOR

Another of Bill Williams’ inventions, the Accelerator Oscillator is an interesting tool that can help you examine the forces that are influencing a price, which means that you can predict when the price will change its direction. It’s an early warning system of sorts because the market driving force always changes before the price and thus creates a window of opportunity you can use to your advantage.

The principle according to which this tool operates is specific. The oscillator is plotted below your chart and shows red and green bars denoting the market force. This force is what changes the price, but in order for the price to change the force has to stop accelerating and start decelerating (if the price was going up) or vice versa (if the price was going down). Red bars show decelerations, green ones acceleration. Keep in mind that the price will start changing only when the force starts gaining speed in the opposite direction. Given that Accelerator Oscillator helps you predict these changes in the force, you can see why it is very much popular among traders.

Remember that the zero level is not that important here. It merely represents equilibrium. To properly use the Accelerator Oscillator, however, you need to focus on the colors – buy when the last bar is green and sell when it’s red. Do keep in mind that it matters how the force is influencing the price when you enter the market. If you’re entering in the same direction, two same bars should be enough of an indicator for you to react. If the force is acting opposite to your position, then another bar should be taken into consideration. And that’s the main thing you have to worry about! That’s why experienced traders love this tool and beginners find it so easy to use. And if you like using it too, you may want to check out the one we have in store for you next, too.

STOCHASTIC OSCILLATOR

The Stochastic Oscillator is a technical investment analysis tool used to measure a security’s closing price in comparison to its price range over a given period of time. The process is used to help traders determine the best time to buy or sell a security. It’s based on the theory that as a security’s price increases, it will tend to close at its highest point of a given period of time. On the other hand, as the price declines, its closing price will fall to its lowest point.

The numbers are plotted on a graph side-by-side and the fluctuations range between zero and 100. If the stochastic is above 80, the security is overbought. If it’s below 20, the security is probably oversold. The most important thing regarding the stochastic oscillator is to look at the cross between those two lines (that of the security’s price and the line belonging to the oscillator) and see if the market is in the overbought or oversold territory. If it is, then it’s time for you to react. You can reduce the tool’s sensitivity if you change the time period so that you can observe the market in different ways and different time frames, but the principle remains the same.

There are many advantages to using your Stochastic Oscillator, and there are many ways to find the strike price. The default settings are levels 80 to the upside and 20 to the downside. The cross won’t be interpreted correctly if it’s between the levels 20 and 80 and it’s more valid if it’s above 80 and below 20. You can add an intermediary level (let’s say 50) that will help you make a better prediction. If a trend is bullish (when the stochastic oscillator breaks the level 50) you should enter the call option.

In a bearish trend you should put an option if the stochastic oscillator breaks the level 50 to the downside. You will notice very quickly that this tool is very easy to handle. The illustration is very clear and there are absolutely no graphic elements that could confuse you. You can also try it via various trading platforms, and you can even download some variations of the tool for free! But keep reading, there’s one more oscillator we need to cover.

CCI – COMMODITY CHANNEL INDEX

CCI or Commodity Channel Index is a type of oscillator designed to show the market’s trending conditions to a trader, so that he or she may assess the situation correctly. If you have already mastered the basics of binary options trading, this may be a very good way to continue developing your trading skills, and our trading experts are going to help you with that. This index can help you a lot to react quickly when a trend starts to develop, which means it can sometimes be crucial in making profit from your investments.

First of all, CCI is used to grasp the way trends are going to develop, so many people consider it to belong to the group of Trend Indicators just as much as to oscillators. Most brokers that offer this tool set its main levels to 100 and -100, but do not think that these levels cannot be broken. Quite the contrary, strong trends tend to pass these milestones quite easily. When using the CCI, try also to plot the 0 level on your chart because it will give you a much better view of the situation and show you how strong a trend is and what can be expected of it. Make sure the situation is nice and clear on your screen so that you can quickly extract all relevant information from it.

What is particularly interesting about the CCI is the fact that it reacts extremely quickly, much more so than, for example, the RSI. Because of this, it is extremely important to keep track of the time frame you’re using on your chart, as the differences in the CCI’s behavior can be very significant. CCI can reach its overbought and oversold levels fairly quickly, so you need to be ready to react. In addition, this oscillator usually does not show any major divergence, which is another difference between it and other important oscillators. Taking all these things into consideration is a must if you want to use this tool properly, therefore you should always make the necessary preparations before you start trading. After that, everything becomes much easier.

With that, we will wrap up the part about oscillators. But don’t think that we’re done yet. Oh no, this is an ADVANCED binary options strategy guide, after all. So why don’t we check out some famous trading strategies?

STRATEGIES

Having a sound binary options trading strategy is vital if you want to be a successful trader. You simply need a set of rules that will tell you how to behave on the market, how to approach your investments etc. Sticking to these rules can also be very helpful from a psychological perspective because many traders lose their bearings when the trades they open don’t go their way. Having a good strategy can help you get back on the winning track, and you can easily test one out by using a demo account. It’s all about being consistent, really, so here are a few good examples of how to prepare yourself for trading.

MARTINGALE AND ANTI-MARTINGALE

When you’re trading binary options, the most important thing you need is to have a sound strategy, a principle that will guide your investments and help you focus. This is very important from a psychological perspective because you don’t want to be all over the place if you start losing and you don’t want to get overly excited if you start winning. At all times, you need to know what your next move is. That’s what Martingale and anti-Martingale are good at: they set rules for your behavior so that you don’t get carried away. Additionally, they are very easy to understand, so they are the perfect candidates to open this section.

The main principle behind Martingale and anti-Martingale strategies is actually pretty simple. The former says that if your prediction turns out to be incorrect, you simply need to double your next investment because it is highly unlikely that you will lose 100% of the time. However, this should be done only after an extensive analysis of market conditions. If you’re still a beginner, you should probably choose a strategy more suitable to your skill level. Anti-Martingale is, as you would expect, completely opposite. This strategy advises traders to double their investments every time their trades end up in the money, but halve them when they lose. The main idea here is to capitalize on a winning streak during periods of growth so that you can go home with a hefty profit.

However, both Martingale and anti-Martingale have their downsides. It is clear from the previous paragraph that Martingale and anti-Martingale strategies are based on trends. However, in Martingale’s case, you can’t go on doubling your investments forever. Your resources are limited and if the streak lasts you risk losing all funds in your trading account. Anti-Martingale has a similar story because if you don’t estimate correctly when your streak is going to end, you could be in trouble. You are, after all, investing MORE after each successful trade, so don’t get greedy.

If you get carried away, you can easily lose more than you win. Basically, Martingale and anti-Martingale both can be used as good strategies, but they both call for moderation. Generally speaking, moderation is a very desirable trait in this business, so try to train yourself to stop while you’re ahead.

This strategy is definitely not for everyone, so if it doesn’t sound like your cup of tea, don’t be afraid to move on. Math can actually be quite helpful in this line of work, and there is one approach that could be just what you’re looking for.

USING FIBONACCI NUMBERS

Fibonacci numbers are some of the most important trading tools you can use on a trading platform. They are especially important when you want to analyze time as an element of your trades and they can help you retrace the market’s movements. However, there are some tricks to using them properly.

If you are going to trade binary options, you have to take the element of time into consideration, and that’s exactly where Fibonacci numbers can be really helpful. Fibonacci Time Zones are vertical lines having to denote Fibonacci intervals (1, 2, 3, 5, 8, 21, etc.). Significant price changes are expected near these lines. If you want to build this instrument, you will have to specify two points to determine the length of a unit interval. All other lines are built on the base of this unit interval according to Fibonacci numbers.

Another important thing to be mentioned when speaking about Fibonacci numbers is Fibonacci Retracement. It is the potential retracement of a financial asset’s original move in price. Horizontal lines are used to indicate areas of support or resistance at the key Fibonacci levels before the move continues in the original direction.

But there are some things you should definitely avoid when using Fibonacci numbers while trading. First of all, it’s important not to mix Fibonacci reference points. When fitting Fibonacci retracements to price action, it’s always good to keep your reference points consistent. It’s also very important that you don’t ignore long-term trends. Traders, especially rookies, usually try to measure significant moves and pullbacks in the short term. However, without a bigger picture, you won’t be able to come to the right conclusion.

By keeping track of the long-term trend, you will be able to apply Fibonacci retracements correctly. Due to the market’s volatility, using Fibonacci numbers on a short period of time can sometimes be completely ineffective. Furthermore, do not rely just on these tools. Fibonacci can provide reliable trade setups, but not without confirmation. That’s why it’s good to combine Fibonacci numbers with Oscillators and Trend Indicators. That goes pretty much for every tool – don’t use it alone and try to extract as much information as you can from the data you get from all available tools.

However, if all of this just seems like too much work, there is a way around it. Technology can help you out, and you can pretty much automate your trading process. Sounds interesting, right? You might even say that we’ve left the best for last. However, there are several things to look out for. One more topic to go. 

Algorithmic trading

Algorithmic trading is a trading system that utilizes complex mathematical models for making transaction decisions in the financial markets. It’s a mathematical way of determining the optimal time for an order to be placed that will cause the least amount of impact on a stock’s price. Things usually go like this: algorithms divide large blocks of shares into smaller lots. This allows more complex algorithms to make an efficient analysis and decide when the smaller blocks are to be purchased. Algorithmic trading is commonly used by large institutional investors due to the large number of shares they purchase every day, but it’s also a pretty common trick among regular binary options traders.

As you probably are already well aware of, trading can be really stressful. If you use algorithmic trading, this is something you shouldn’t worry about because trading robots don’t need to cope with their Trading Fears and they won’t have an uncontrollable desire to regain losses. Sure, you can always improve your trading skills by learning to work with some analytical tools (such as oscillators or trend lines), but the emotional factor is the one that separates humans from robots.

Automatic trading systems are supposed to always pick the most favorable conditions among hundreds of financial assets. They make deals within fractions of a second and reduce the risk of manual errors when placing the trades. Many trading strategies are used in algorithmic trading, and we will name just some of them here. The most common are the ‘trend following strategies’, where the trends in moving averages, price level movements and related technical indicators are followed. It’s the simplest strategy because it doesn’t involve any predictions or price forecasts. The ‘index fund rebalancing’ strategy has defined periods of rebalancing to bring their holding to the same level with their respective benchmark indices, in order to make profitable opportunities for algorithmic traders. But beside the two, algorithmic trading offers many other options to explore.

Keep in mind, however, that these are only pieces of software and will ALWAYS do as they are programmed. They cannot think for themselves, which can sometimes result in mistakes, so be careful how you use them. They may not, for example, spot an investment opportunity better than what they’re programmed for, which can end up hurting your bottom line. So perhaps the best way to utilize them is as helpers, as something that will relieve you of trading stress for a moment and save you energy when the market is calm and when the trades that can be made are fairly straightforward. When some thinking or making educated guesses is involved, a competent trader is still a better choice. Nevertheless, the help algorithmic trading can provide is often invaluable. Just don’t expect that a robot will appear that can magically guess every single trade.

Conclusion

If you have a firm grasp on all the things discussed in this article, you can indeed consider yourself an advanced binary options trader. As you can see, there are plenty of analytical tools you can use, and they often work best when they complement each other. This is why being an online trader is a serious business – if you really want to dig into it, there are many things you have to learn. Sure, you can trade even if you’re a beginner, but after reading this article it should be clear to you that there are many layers to this and many nuances you need to be aware of.

However, don’t think that your growth as a trader stops here. There are still many more things you would do well to cover, things that will help you to become even better at predicting market movements. As a matter of fact, there will always be something new to learn, a new strategy that needs to be tested or a new interesting tool that needs to be mastered. So don’t ever neglect your trading education. And if you feel you are ready, proceed to the highest level of tips we have in store for your – binary options for experts await!

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Author: Martin Simons
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