Day trading binary options
What is Day Trading?
Betting on binary options may seem like an easy way to make money. However, there are many things you should know about them before you enter the game. The main features are their simplicity, efficiency, high returns and fixed contract length. To trade options, one has to study their characteristics, varieties and features and based on this knowledge, choose the type that best suits the trader. This is a fairly new type of commerce and the idea behind it is to take advantage of price movements.
A binary option is an exchange contract used to allow the trader to profit from price movements of an asset (currency, virtual currency, commodity, stock) in the global financial market.
There is an incredible variety of binary options on the internet. Here are the most famous ones:
- The traditional option has names like all-or-nothing, digital or fixed. The idea behind these trades is to predict the movement of the price of the chosen asset over a set period of time. If you think the rate will go up, you press "Call"; if you think it will go down, you press "Put".
- "One Touch. The main thing is that the price of the option reaches the set level within the designated time frame. It can bounce back. But if until the expiration time the price even touches the level you selected, then you win.
- "In/Out" or "Edge" - Execution of a deal to buy option, when forecasting the trading corridor of the asset price before the time of expiry (option In) or when the asset price is outside the corridor (option -out).
- "Staircase. This is similar to "Touch", where we have to predict that the price will touch a certain level. In Ladder, you have lots of levels and as each one touches you get more and more money.
These are the main types of binary options that you can find at different brokers. Some give simple Up/Down, others offer all options at once. Start with the simple ones, that way it will be easier for you to get into the game.
Expiration - time of action of the opened order. The order will expire at the end of the time frame chosen by the trader.
There are many strategies that you can use to win in binary options trading. Each strategy has its own success and failure rate. Often strategies are based on expiry time and there are 3 options:
- Short-term. Turbo options are short term types. The expiry time is short and depends on the conditions, which are provided by the broker. In most cases, it is from a few seconds to a few minutes.
- Medium-term. This includes day trading with binary options. It lasts from a few minutes to 1 day. In this case, the trade does not roll over to the next day. You close all your trades before you exit the market.
- Long term. They can last up to 1 year, but are not much in demand as it takes too long to wait for the result.
The most demanded and profitable method is considered to be turbo and intraday trading.
Most often for commerce on this strategy are chosen volatile products with large fluctuations, and the total duration of transaction is often a few minutes or hours. Very often, intraday trades involve borrowed funds. They are repaid to the lender on the same day, allowing you to avoid paying interest.
The advantages of day trading binary options:
- No need to be in front of a PC monitor all day. Unlike scalping or intraday trading, there are a couple of entries in a day.
- You do not need to work with the exact signals for the operation. Most often, an investor will receive up to 5 signals during a day.
- Optimal solution for those who are just starting out in this direction.
- Conservative risk - systems for this style of commerce allow balancing profit and risk, but at the same time, no one cancelled the rules of money management.
Do not forget about money management. Remember that investing more than 5% of the capital on the balance in 1 transaction is a high risk. For a beginner, we reduce the percentage to 2-3%, gradually increasing it.
Technical analysis for binary options day trading
The best markets for day trading binary options will be those that are capable of generating smooth and powerful trending days. The market must have sufficient liquidity (to execute trades correctly and keep risk at the proper level) and volatility. That's why intraday traders migrate from one market to another, choosing the one with the highest profit opportunities right now.
It is important for intraday traders to track the market mood and know what ideas and instruments are in play. It is not only a question of technical analysis, but also of understanding which market is currently in the news. So the ideal strategy is a combination of technical and fundamental analysis.
Whereas with fundamental analysis it is easier, here you have to look at the big picture and the news, the technical analysis is amazed by the variety of different tools and methods.
The main task of the technical analysis is to determine the trend formation, its reversal, decay and transition to flat. At different times, this problem was solved in different ways.
Mathematical analysis for binary options day trading involves the use of indicators and charts. There are many indicators available that you can use, all of which are designed to provide you with a market trend analysis. Here are the most popular ones:
- Moving averages are plotted on a chart as a continuous line, and display the average price of an asset over a certain period of time. It is based on a mathematical formula, which averages the price of an asset for a chosen period of time.
- Bollinger Lines are used by traders to determine the volatility of an asset when commerce binary options. They consist of a moving average in the middle and two price targets of the asset, which move on either side of the moving average - lower and upper.
- The MACD. This is used to determine the moment of the price reversal, as well as the strength and direction of the trend. Its readings are shown as a histogram and as two lines: fast and signal.
- Stochastic oscillator or stochastic is placed below the chart and consists of a graduated scale from 0 to 100 and two lines: the main line and the signal line. It can be used to rather accurately predict a price reversal.
- The RSI Oscillator reflects the strength of the price movement and additionally indicates the possible reversal points. It is placed below the chart and consists of a graded 0-100 and a curved line.
Nowadays, many more complicated indicators have been developed by traders, but in the overwhelming majority the principles and algorithms of the above-mentioned ones are used in their indications.
Price movement is also displayed by different types of charts, the main ones are 3:
- Linear - the simplest chart, just a line, which allows you to quickly determine the direction of price movement. The line is formed by combining closing prices for the selected time frame;
- On a bar chart, information about price movements is read on bars. Bars show changes in price quotations in the selected timeframe. Each bar has a minimum and maximum price point as well as two horizontal dashes: the right one indicates the price level of the asset when it opens and the left one when it closes;
- Candlestick; A candlestick is a very effective indicator that shows a selected period of time in which the price has moved. It uses Japanese candlesticks to show price changes. Candlesticks are coloured in two contrasting colours, usually green and red. A candlestick is coloured green when the price is rising and red when it is falling. Each candlestick has a 'body', showing the price of the asset at the time the candlestick opened and closed, and 'shadows', which are vertical dashes extending from the lower and upper edges. The shadows indicate the minimum and maximum price value in the selected timeframe. Many strategies are built using this chart.
Study concepts such as support and resistance levels.
Support and resistance levels are a type of trend line. They are drawn from those highs (resistance levels) or lows (support levels) where the most selling or buying occurs. In the first case pressure on the price promotes its turning downwards and formation of a downtrend, in the second case - an upward reversal. The more price reversals from a level in the past, the more likely they are to continue in the future. But over time, even the most powerful levels will be broken. Binary options are traded on bounces from support and resistance levels, as well as on their breakouts.
All the technical indicators and charts can be found in detail in books, on the various websites or on the platform. For example, you can use a demo account to practice using and understanding the different indicators. This will be the best teacher.
How to start day trading binary options?
If you are looking for answers on how to start day trading binary options, you need a broker. The broker can be a real person or an online platform. The latter option is now in high demand, as it has undeniable advantages. You will gain experience on your own. You will always be able to make money with your experience and at a minimum cost. On top of that, the platform is built by professionals and provides you with many services. Proprietary mobile app, up-to-date economic news, user-friendly terminal, 24/7 service support, video tutorials, live chats and much more. To make it all available to you, just sign up and open a free demo account. It will not bind you to anything, but it will bring a lot of benefits and experience.
In order to familiarise yourself with the various services of the trading platform, it is critical to sign up for a virtual account.
Trading binary options is a risky business. The reason is that the market of these instruments is unstable and to make steady profits and be able to make predictions, you need to be skilled in charting and analysis. These skills can be learned on a virtual account. You will have gambling capital which you can spend as you wish. But you will not be able to withdraw your profits from this account. It is completely virtual.
A demonstration account enables beginners to understand the benefits of real trading leverage, and allows them to create an effective trading strategy. Just like a real account, it includes a wide range of charts and signals which provide traders with valuable information on market trends.
Once you are confident in your day-trading skills, you may want to consider playing on a real account. Test it out for a few weeks with minimal investment and take profits as you go. It's a great way to learn. Try diversifying your investments to reduce your losses and maximize your profits. You will soon be able to get an idea of how to do it better. Good luck!