Binary Options Strategy

Following a strategy when trading digital options may significantly increase your chances to be profitable. However, you should stay realistic and be aware than you can never be certain of success.

Are binary options strategies infallible?

There is no perfect strategy in trading, no matter what any so called "Guru" or signal provider will tell you. All strategies have some flaws and weak points, and there is no such thing as a perfect mathematical model to achieve profits on the financial markets. When deciding to use a strategy you must be aware all the time that even the best strategy is no guarantee for success. However, this should not discourage you, because certain strategies can be very profitable most of the times. You only have to keep in mind that luck is a very important factor in trading, just as it is in life in general.

What type of binary options strategies exist?

Generally speaking, there are two main categories of strategies when it comes to binary trading:

Type 1: Strategies based on betting models - Those strategies presume that using specific patterns in terms of investment amounts and the right timing can generate profit no matter if the trader is skilled or not at market prediction. Those strategies presume that in certain situations you can design your option buying strategy to give you a high probability of winning. In this category you will find betting pattern strategies like The Grinding Strategy or strategies based on trading the news.

Type 2: Strategies on how to predict the direction of the market better - In this case the strategies are based on simple technical and statistical evidence that in some circumstances the market has greater chances to move in one direction over another. While technical analysis can be pretty complicated, there are much simpler ways of interpreting the charts, especially when it comes to binary trading.

Binary options simple strategy

The strategy that we are going to present is a very simple "Type 2" strategy. It's purpose is to help you predict the direction of the market movement and have a high percentage of options that finish in the money. This strategy is based on the assumption that markets tend to correct themselves after movements in one direction, and the price usually goes up and down. This means that if the price has raised in the previous timeframe, it is more likely to fall in the next one.

Of course, this is not a rule and there will be many times when it won't happen, especially when the market is on a trend, but when the market is calm and fluctuations are at small levels (a low volatility) you will most likely see ups and downs constantly.

Binary options usually have a small timeframe and are ideal for this type of technique. The trading platforms of the brokers will show you a recent chart of the asset that is well suited for the option's timeframe. If an option expires in 15 minutes, you are likely to see the chart for the last 45 minutes and an empty chart for the next 15 minutes like in Figure 1:

Binary Option 60 minutes Chart

Figure 1: USD/JPY one hour binary option chart

If the current price is higher than the opening price (in the current sample the current price of 79.7199 is higher than the opening price of 79.6921) the price is more likely to move down, and you should buy a PUT option. In the opposite situation, when the current price is lower than the opening price you should buy a CALL option as the market is expected to move up.

After buying the PUT option you must wait until the expiry time, which is 15 minutes in this case. Let's see how the chart looked like after 15 minutes:

Binary Option 60 minutes Chart

Figure 2: USD/JPY chart after option expiry

The price moved down to 79.7032 and the option finished "in the money" generating a profit of 81% in only 15 minutes. As you can see, the price followed the tendency to normalize after a small increase and finished closer to the opening value. While this outcome is more likely to happen than the opposite, you should expect a decent amount of trades to end up the wrong way.

You should also keep in mind when using this strategy that sometime the market is on a trend or some important news may be released that will shake the market to a degree that such simplistic analysis will be useless. This strategy is recommended on calm markets with small trading volumes and no news expected to be released in the following hours.

Binary options signals and automated trading systems

Some very experienced traders have developed their own complex trading strategies that render very good results. Such strategies and algorithms are available to everyone through special services that offer trading signals or even automated trading through their advanced systems.

The binary options auto-trading strategies are also known as binary options robots. We monitor many such binary options robots to see how well they perform, as many of them don't offer the results advertised on their websites. Live-testing is the best way to check if a robot's strategy is actually as good as it pretends to be.

Here is the list of the best binary options auto-trading strategies based on the actual results we had with them on our monitoring accounts:

#
Strategy Name
Win Rate
Profit
1
71%
27.80%
2
71%
27.80%
3
68%
22.40%
4
67%
20.60%
5
64%
15.20%
6
62%
11.60%
-
60% Winning Rate
60%
8.00%
7
59%
6.20%
8
57%
2.60%
-
Break Even Rate
55.55%
0.00%
-
Average Robot
52%
-6.40%
-
50% Winning Rate
50%
-10.00%

Win Rate = The number of winning trades out of the last 100 trades executed (updated weekly)

Profit = The average profit per trade calculated based on a 80% payout for winning trades and 100% loss for losing trades. This is the actual profit per trade after taking into account the difference between the payout offered by brokers which is lower than the amount lost when the trades are out of the money. This means that you need a winning ratio of 55.55% to break even.

Note: The robots that had a winning rate below 55.55% and generated losses are not listed in the table above. The average winning rate we experienced with trading robots is around 52%, so the average robot will generate a loss over the long term. However, using the top robots can be quite profitable.

We also have a dedicated page where you can find more about binary options automatic trading strategies: Best Binary Options Systems.

Binary options trade size strategy

A very simple and yet effective binary options strategy is the so called "Grinding Strategy", which focuses exclusively on the size of your trades. This is a "Type 1" strategy, because it is based on a betting model and it has nothing to do with reading the market correctly or increasing your prediction rate.

The strategy we are going to present is derived from the famous Martingale system and it works very well with binary options, because financial markets are influenced by previous movements and this creates the optimal conditions for Martingale-based systems.

This strategy works in a very simple way. You start with a fixed trade size (for example $25) and every time you lose a trade you double the size of the next trade. In this case, if you lose three consecutive trades and win the fourth one, your lost trades will have sizes of $25, $50 and $100 while your winning trade will have a size of $200, which is higher than the three losing trades combined. This creates a very positive outcome, since your three losing trades are the equivalent of a $175 lost trade, while your winning trade has a bigger size ($200). This is a scenario where a winning ratio of 25% (one out of four trades) gives you a better result than a winning ratio of 50% with same sized bets.

The principle behind this strategy is to maximize the size of your winning trades when they come after a losing streak, so that they can compensate for any consecutive misses. Once you win a trade, a cycle is complete and you start over with the initial stake. To better illustrate how this strategy is supposed to work, I will give you an example of consecutive trades and their outcomes in a table. You will notice how the trade size changes after each loss, and then gets reset after a winning trade.

Trade Number Trade Size Outcome
1 25$ Win
2 25$ Loss
3 50$ Loss
4 100$ Win
5 25$ Loss
6 50$ Win
7 25$ Win
8 25$ Win
9 25$ Loss
10 50$ Loss
11 100$ Win
12 25$ Loss
13 50$ Loss
14 100$ Loss
15 200$ Win
16 25$ Loss
17 50$ Win
18 25$ Win
19 25$ Loss
20 50$ Win

As you can see in the above example, after each winning trade the size was reset to $25, while after each losing trade the size of the trade was doubled. The above example includes 20 trades with a winning ratio of 50% (10 winning and 10 losing trades).

Now let's see how this strategy affected the result as compared to a standard trade size with fixed amount. In the above example, the winning trades had the following sizes: 25 + 100 + 50 + 25 + 25 + 100 + 200 + 50 + 25 + 50 = $650. On the other side, the losing trades had the following sizes: 25 + 50 + 25 + 25 + 50 + 25 +50 + 100 + 25 + 25 = $400.

If you compare the result with a standard trade size of $50 for each trade, you will notice a great improvement. The fixed trade size would have resulted in $500 worth of winning trades and $500 worth of losing trades. By applying the Martingale-based trade size model, the winning trade size was increased by $150 while the losing trade size was reduced by $100.

To see how the results reflect in real market binary options trading conditions, we will apply the 80% payout ratio to the winning trades and the 100% loss ratio to the losing trades, just like we did when we analyzed the automated trading robots success rate translation into real profits. The results are impressive:

Fixed trade size of $50 with 10 wins and 10 losses result: ($500 x 80%) - ($500 x 100%) = 400 - 500 = a loss of $100

Martingale-style trade size with 10 wins and 10 losses result: ($650 x 80%) - ($400 x 100%) = 520 - 400 = a gain of $120

The above example shows how a smart trading size choice can turn a 50% winning ratio from losses to profits.

As with any binary options trading strategy, The Grinding Strategy is not infallible. While it normally gives a very good advantage, it has one weakness. The strategy will not perform well when the distribution of winning and losing trades is unnatural and results in very long losing streaks that will put too much pressure on the trade size. While the risk of long losing streaks is very small, since it is very unlikely to have losing streaks larger than four consecutive losses (the probabilities for that are very low even when coin flipping), it is also recommended to take the following steps to farther reduce the risk of that happening:

1) Choose the same direction of a trade on the same instrument immediately after the trade was closed. This means that at the first price correction the outcome will be different from the previous trade. This will prevent long streaks of either winning or losing trades, and will improve the outcome of your strategy. Markets tend to correct after they move in one direction, because of the nature of how traders close their positions to take profits or to stop losses. This is why the normal pattern of market movements will guarantee reversals at some point, since it is impossible for the market to move in a single direction indefinitely. While you can theoretically flip a coin 10 times in a row and get the same outcome (although it is very unlikely), you will never see markets moving ten times in the same direction in normal circumstances.

2) Don't trade against a trend, and avoid trending markets in general. This strategy works best in flat markets, where price movements in one direction are rapidly corrected. The only real risk to have a long consecutive losing streak if you choose the same trading direction is to go against a very strong trend, so don't do it. If you avoid trading against the trend, you will avoid unnecessary risks.

If you follow the above advices, you will greatly reduce the risk of having too many consecutive losses, and the strategy will give you better results than if you apply it randomly.

Automating the strategy

Since the Grinding Strategy is about setting trade sizes, it can easily be automated. Also, since professional traders know the advantages of the Martingale-based trading systems, some of them implemented this trade size strategy into their algorithms. Imagine the results of combining a high winning rate generated by a solid "Type 2" algorithmic trading strategy with the added benefit of this "Type 1" trading pattern strategy. The results would be amazing.

The good news is, we are not the first to think about mixing the best of two strategy types. The creators of the Automated Binary robot have included several options to customize the trading strategy applied, which include the Martingale-based model. When choosing the binary options trading strategy you want to apply, you can also set the trade size according to three different models: the "Safe" option which is the classic fixed size amount for each trade, the "Compound" option which is the Martingale-based system described above and a third "Accurate" option based on a different pattern.

If you want to try the Grinding Strategy and see how it works, the easiest way is to register with Automated Binary and use their built-in trading robot to do it automatically for you.

Binary options strategy tip: copy from the best traders

Another way to apply a good trading strategy without effort is to copy from the best traders. While this may sound impossible to do, it is actually very simple. There is a binary options trading network named Trader's Buddy where traders can share their results.

The access to the network is free and once you open an account you have a multitude of options: you can copy from other traders, receive signals from the algorithms and trade in a semi-automatic way, or you can go full automatic and use the software's own algorithms, just like you would with other binary options robots.

Another way to take advantage of the skills of experienced traders is by investing into a forex managed fund through a PAMM system. We have a dedicated page where we explain how PAMM investing works here: All about PAMM Investment

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Disclaimer: Binary Options are derivative trading instruments that can generate high yields in a short amount of time, but they are also very risky. Trading using binary options can result in the complete loss of your investment. This is why you should never trade with money that you cannot afford to lose.

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