Creating strategies for binary options coincides with the general approaches in stock trading. But the peculiarity is in the form of a time limit on transactions and the presence of brokers own trading platforms, leads to the need to make mandatory changes to existing algorithms.
When searching for new systems, the trader needs to look for simple strategies, given the limited choice of technical indicators in terminals of binary options brokers. The trader should lay down the universality of the trading system at the stage of its search.
Martingale Strategy
Martingale is a strategy adopted by market traders Forex and most of the trust managers on PAMM accounts. This is an increase in the bet on each new binary option, if the previous one brought a loss.
Traders trade a binary contract of the "Above/Below" type in one pre-selected direction that coincides with the trend, which is determined using one or two indicators Moving Averages – Moving Average (MA). This type of technical tools is present in every broker's terminal.
The classic definition of a trend based on two moving average indicators:
- The trend is considered growing if the "fast" curve from below crosses the" slow " line of the indicator and remains higher. The "speed" is determined by the values of the period – the smaller it is, the faster the MA readings change.
- If the fast curve is higher, crosses the slow line with a long period and remains at the bottom, it is considered that the growth has been replaced by a falling trend.
The rule for determining the trend using a single moving average:
- if two candles or bars closed above the MA curve-the trend "went up";
- the falling trend is determined by two candles (bars) with closing prices below the MA line.
A candle is a time interval of price fluctuations, graphically expressed as:
- tails (minimum and maximum);
- body-the interval between the instantaneous values of the price at the beginning and end of the time interval.
Period – the number of candles or bars, according to the values of which the indicator curve is calculated and constructed.
The above parameters are selected empirically by the step-by-step search method in order to identify the greatest effectiveness (profit) of the trading system.
Common values of periods are the values: 2; 9;14; 30; 50;100; 200.
Recommendations and ready-made trading systems collected on MA can be borrowed in the works Larry Williams, Alexander Elder, Bill Williams. Often, binary options use a ready-made strategy on moving averages, called "Guppy".
Trading during the news release period
Common conditions for receiving a premium on binary options are a directional price movement in a certain direction, going out of the range, touching a certain level. To accurately predict these events, it is necessary to guarantee a strong price fluctuation of the market.
Economic news calendars are pre-known events, as well as the strength of their influence on the market. The problem is that upcoming events may not always give an idea in which direction the trend will develop after their release.
The trading strategy consists in opening a trade a few minutes before or after the release of a significant news. The power of influence is determined by a mark in the economic calendar, usually using a three-point system.
The wagging of the event on the price can be found in the annotation, and the forecast direction can be taken based on the value previously calculated by analysts. The strongest changes in quotes occur within 15-30 minutes after the news is released. Sometimes the main impulse fits into the first five minutes, so the expiration time of the contract is limited within these limits.
The preliminary values do not always coincide with the actual ones, then the price goes in the opposite direction. To increase the probability of earning, traders use "touch" options, with the condition of crossing any of the boundaries located above/below.
Discrepancies (uncorrelation) in pairs with major currencies
List of main currencies is defined by the International Monetary Fund, where they are marked as funds in which states can store gold-currency reserves. In the Forex market, they account for the largest number of transactions, because the importance and demand for these tools is associated with the strength of the national economy.
Major currencies: EUR; GBP; AUD; CAD; JPY; CHF.
According to the Jamaican Agreement between the G-7 countries, the exchange rate of national currencies is equal to to the US dollar and is quoted on the Forex market in the form of pairs. The same base in the form of USD and approximately equal strength of the economies of developed countries makes the pairs of major currencies move in the same direction. This is called correlation, which often causes the" laggards " from this movement of the pair to catch up with the rest.
Traders use divergences( uncorrelation) by buying Binary Options Higher/Below the lagging currency pairs. The classic strategy algorithm looks like this:
- two currency pairs are selected – the leading one, as a reference for the direction, and the slave one, on which transactions are carried out when there is a discrepancy quotes;
- the time format for displaying candles is determined, usually 5, 15 minutes, it also determines the expiration duration.
Common "bundles":
- EUR/USD - leading, GBP/USD slave;
- AUD/USD master, EUR/USD slave.
Other options are possible, except for using USD/JPY. If the pair is inverted, type USD/CAD, USD/CHF, etc., then use the inverse correlation, making transactions when the movement of quotations coincides.
Night trading
"The Asian " session has the phenomenon of low volatility (spread of price fluctuations) in currency pairs that are not related to the Asia-Pacific region (APR). Traders use this feature to trade on currency binary options of the form - " Range" ("Spread" or "Without touching"), for which the premium is paid out if there is no price exit for a certain zone.
The strategy is called "night", since it takes place in the interval between Moscow time 22-00 -01-00 Moscow Time, before the opening of the exchanges of New Zealand and Australia.
Before applying the strategy, you should find out whether the broker works with the selected currency pairs during these hours. Some companies introduce a " restriction on liquidity", refusing to trade in inactive, from their point of view, periods, which often fall into the segment of "night trading".
Divergence
The divergence strategy is based on the discrepancy between the readings of indicators, such as "oscillators", and the price movement. It boils down to buying options of the "Higher/Lower" type, when the highs or lows of the market are not confirmed by similar values on the curves of the technical analysis tool.
Oscillators are indicators that are limited in the maximum values of the range-0 and 1 (0-100%). The calculation formulas of these instruments are based on the ratio of the current range (minimum-maximum) to the extreme price values achieved during the period set by the trader. Therefore, the quotes and the curve of the indicators coincide with the maximum and minimum values.
Discrepancies in the readings that occur oscillators and prices in 80% of cases indicate a future price reversal against the current trend. This means that the trader knows the future direction of movement in advance and can predict whether the quotes will go higher or lower.
Before using the strategy, it is important to:
- Choose the type of oscillator that would give "unambiguously interpreted" divergence signals. It is desirable that these are MACD and RSI, which are widely used in brokers ' platforms.
- Determine the historical period of time at which the minima and maxima are determined, for example, for three sessions, up to a maximum of one day.
- Select timeframe (time interval) candles-limited to an hour as much as possible. The strategy works on all underlying assets, the expiration time of the option is selected equal to two or three candles, the frequency of signals is increased by reducing the timeframe.