For many, binary options are a new and exciting way to speculate on financial market price movements. The sheer simplicity of trading binary options, which involves a simple decision of higher or lower from the current price after a predetermined amount of time, is certainly a reason why so many new traders are becoming involved in binary options trading. Furthermore, both the profits and the losses which can result from trading binary options are already known before the trade has even been placed in the market. This makes trading binary options even more suitable for new traders and those looking a different and more straightforward trading experience. The advice for all newcomers and even those looking to make the transition from conventional trading, is to focus on building a trading plan before jumping into to this exciting new trading world.
Trading binary options is distinct from conventional trading because it incorporates the additional factor of time in to the trading equation. This means that the precise time that the options expire will determine whether they expire in the money or out of the money. For new binary options traders this will be something that needs to be the focus of the trading plan. Whilst it may be fairly straightforward to predict if price will rise or fall with any good trading strategy, predicting whether it will remain higher or lower when your options expire is where planning really needs to be applied in binary options trading.
Momentum, swing trading and the choice of expiry times
Developing a solid trading strategy is an absolutely essential part of becoming successful in binary options trading. Whichever strategy a trader decides to employ it will be necessary to adapt this to the time factor when trading binary options. For example, for those traders who prefer to use short-term scalping strategies, and have perhaps employed these successfully using conventional trading, it will be most beneficial to trade the lower-end binary option expiry times. These can be from as little as 60 second binary options which allow momentum scalpers to spot their trade set up and close out of their position just one minute later. For those that look to trade longer term price swings, the longer expiry times such as hourly or daily will allow the position to mature in-the-money. It needs to be remembered, however, that binary options only need to close fractionally above or below the strike price in order to be in or out of the money, and this means that the timing of the trade is essential.
Building an exit in to your plan to save money
Planning what to do if a trade begins to wobble, or turn against you is just as important for binary options traders as any other form of trading. Whilst there are no stop-loss levels needed, many platforms allow the chance for traders to expire a position early for a lower loss if the trade is looking hopelessly out-of-the money. Some traders may prefer to ‘set-and-forget’ their trade, planning and entering the trade and then leaving the options to expire as part of their plan. This is an effective way to reduce the stress of trading and to allow a trading system to perform on its own, although other traders may prefer to be more proactive with those trades that fail to live up to their expectations. In these cases, binary options’ trading offers a hedging strategy which can be effectively built in to any trading plan. By hedging a position (taking a position in the opposite direction) at the strike price in a situation where the market has reversed against you, will result in almost a guaranteed loss and win scenario. The win will cancel out a large part of the loss and minimise the impact of trades that fail to perform.