Just like stock trading, binary option trading requires the knowledge and use of strategies to put the odds on its side to gain in the long term. There are two main types of speculative trading strategies in the world of professional trading: it is the technical (or graphic) analysis and fundamental analysis that we will analyse in the first place. We will then deal with the two empirical methods that are most widely shared on the web: the martingale and trading with the traders’ tendency tool.
The technical analysis – or chart analysis – involves studying the exchange rates charts of different assets in order to predict their future orientation. This type of analysis is based on the Dow Theory. This theory, realized by ??a great financial analyst and co-founder of the Wall Street Journal, on the principle that the “market remembers”. This means that what has been observed in the past, reiterates itself again today and in the future. In other words, the analysis of decades of charts histories has enabled the technical analysis to identify specific contexts where it becomes possible to predict the future orientation of an exchange rate with a significant reliability. The technical analysis therefore consists of studying the charts using technical indicators (to have access to certain digital information or additional charts) and observing patterns of graphics and / or candlestick charts patterns. This type of analysis is most commonly used by traders. Many books and websites will inform you about its learning, its method of application and the different strategies associated with it.
The other empirical method regularly seen on the web consists of monitoring a tool for “indicator of traders’ tendency” (also called “tool of traders’ sentiment“), provided by the online broker. This tool describes the balance of positions at the purchase and sale of each index at a given moment. Provided by the broker, the tool shows you the percentage (%) of their clients with positions at the purchase and the percentage (%) of their clients with positions at the sale (in real time) for a defined financial asset. The clients of an online broker cannot trade on Wall Street but some have the audacity to trade “by instinct” (and ignore those who use the martingale method mentioned above…). Therefore, this type of tool becomes completely obsolete and its reliability is totally uncertain or even completely absent. Once again, the bonusbinaryoptions.net team warns you against this type of strategy and invites you to avoid following it.
Fundamental analysis is the second branch of market analysis for binary option trading. This method focuses exclusively on economic statistics and the overall economic climate to predict the future orientations of the exchange rate. For example, the crisis of 2008 was an excellent opportunity to stake downwards on the main publicly-traded companies, especially the banks and investment funds. On a smaller scale, dozens of economic indicators are published daily (such as the unemployment rate in a country, for example). All these economic figures are available in economic calendars available online on the internet. The real-time monitoring of these new ones can help you take decisions to increase or decrease the principal instruments traded in binary option, including the currency pairs of the Forex market.
There are many websites or ebook extolling the merits of using a martingale. What is a martingale? A martingale is a betting method that consists of increasing the amount of the initial investment at each loss until a gain is achieved. Suppose you stake € 20 upwards to the EUR / USD exchange rate. The principle of the martingale will lead you to stake double your bet until your winning position of closing. In our example, if you lose your transaction, this principle will invite you to repeat the same bet for an amount of € 20. If your position closes again at a loss, you should then bet this time an amount of € 40. The principle is to offset losses of previous bets until achieving the gain that was initially sought. The risk can only become very large if you suffer a long series of consecutive losses. By leveraging € 40, then € 80, then € 160, € 320, € 640, € 1028 … In a few blows, the amounts to invest become astronomical. The result: Your account is empty and you just have to file new capital and file a dispute against the person who extolled the merits of this strategy.
Our advice: never use any martingale.
And yes, being a winning trader in binary option in the long term is not disconcertingly simple. If this were the case, we would all naturally be rich…! Nevertheless it must be recognized that certain particular traders earn a very good living. Here, we will explain the principal points that all such winning traders must meet.
Minimising risks constitutes a good starting point to avoid bankruptcy. The best method is to follow the rules of capital management, also called “risk management” or “money management” by professional traders. This common sense rule consists of not:
– placing big bets
– putting all your eggs in one basket
– do not invest too much available capital
It is advisable not to bet more than 5% of one’s capital in one position. Thus, if you have € 1000 on your binary option account, it is not advisable to bet more than € 50 in a single transaction. In the same token, it is not advisable to bet on a too large number of instruments that are correlated in the same direction. For example, it is not advisable to bet simultaneously on the fall of the EUR / USD, EUR / GBP, EUR / CAD, EUR / JPY, EUR / CHF … etc. In this case, you understand that a single jump upwards of the Euro currency (EUR) could jeopardize all your positions.
The psychology of the trader plays an important role in the likelihood of his / her gain or loss. In fact, the principal loss factor of a trader in binary options is directly due to his / her cognitive biases. The typical error is to lose all sense of money and bet more and more important sums to fill a high loss that has been suffered. Under no circumstances should one bet excessively; one must keep in mind a strict trading plan and a method of rigorous capital management. Being governed by one’s emotions and the desire to earn more money or to erase a loss by taking more risks always leads to loss. In contrast, a winning trader will be disciplined, Cartesian and will never let emotions interfere in his / her choice of trading (or at least, as much as he / she can.).
In conclusion, the best method to gain in binary option is to study the technical analysis and fundamental analysis, to develop a strict trading strategy with a rigorous capital management plan (and stick to it), and to not be ruled by one’s emotions (which lead many amateur traders to lose…).
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