Martingale & Anti-Martingale Strategy

Top Strategies In Binary Options Trading

Just as in any other form of trading, for one succeed in binary options trading, one should find a good approach and come up with the right strategy for trading as well as the management of the trader’s investments.

There are a variety of binary options trading strategies that have been developed with an aim of increasing the income obtained from binary options trading when these trading strategies are properly utilized.

In this article we are going to look at:

  1. Martingale and Anti-martingale Strategy
  2. Tunneling Strategy
  3. Precise Enter Strategy

There is also a short segment on volatility tools to enable binary options traders to understand the significance of volatility in market prices while using their trading strategies of choice.

Martingale & Anti-Martingale Strategy

The Martingale Strategy is a common binary trading strategy that is used by most binary options traders. It is where a binary options trader doubles his or her bet after losing the previous bet, with the hope of winning this time round. The doubling of the bet is done in the attempt of covering the previously lost bet. The most important thing that binary options traders should not forget when applying this strategy is that they should not only double the last bid but rather double the sum of all the previous bets that were lost as well.

For example, if a trader bought a binary option for $25, which is usually the minimum purchase option, and the option results in a loss, the next time the trader purchases an option for $50 and the forecast still turns out to be incorrect, the trader should go ahead and purchase $150 in the next option, and if it still results in a loss, the trader should invest $450. This strategy requires a lot of courage as well as patience.

However, if a trader buys stock options after doing a good analysis of the market, it becomes very easy to apply this strategy to reduce the risk. But for the beginners, they should only use this strategy if they very courageous and they have a tight budget.

Opposite to the Martingale strategy, there is another strategy called the anti-Martingale strategy. The anti-Martingale strategy involves increasing the investment only after a profitable option has been closed and reducing the subsequent investment if the previous option has made a loss.

Binary options traders should, however, keep in mind that the key to making profits is having a rational approach when trading: the trader should have a plan, and settle on the maximum amount that he or she is prepared to invest.

Precise Enter – binary options trading strategy

So that traders can effectively trade binary options, they often apply a strategy known as Precise Enter. This strategy suggests when it is the most suitable time to start trading, and also assist in determining the correct direction that the market is most likely to move. However, this strategy leaves a lot of room for experimentation.

Using a number of formulas can considerably improve the results of this strategy. For instance, for better accuracy, the trader can add the use Fibonacci levels will enable the trader to detect the last oscillation so that he or she can be able to avoid even the smallest rollback, and thus increase the precision of determining the appropriate time to enter the market.

The Precise Enter strategy is applied in connection with a number of instruments and it also has a number of requirements. Below is a list of the instruments and requirements required while using this strategy:

  • Trades should only be implemented on the daily chart.
  • Trades can be made using any of the available currency pair.
  • The Simple Moving Average with a periodicity of 150 should be used.
  • The Stochastic Oscillator (6, 3, 3), horizontal lines 70 and 30 should also be used.
  • RSI (Relative Strength Index) with the frequency of 3, horizontal lines 80 and 20 should also be used.

The above guidelines are very important in determining the exact time for entry.

For example, if there is an upward trend and the price gets above the 150 Simple Moving Average SMA, the trader should the RSI 20 indicator to be moving in a downward direction and crosses the level of 80. Then the trader should also wait for a confirmation signal by the intersection of Stochastic, which is usually given when the two intersecting stochastic lines get below 30. After all these conditions have been met, the trader should go ahead and purchase “call” binary option. But if the trend starts to change to a downward trend, and the market prices moves below the 150 Simple Moving Average (SMA), the trader should wait until the relative Strength Index (RSI) crosses the level of 80 from the bottom moving up. Then the trader should wait for a confirmation signal by the crossing of the two stochastic lines above the level of 70 for him or her to place a short-term “put” binary option.

Tunneling Binary Options Trading Strategy

This is one of the simplest and most effective binary options strategies there is especially for the beginners. It is based on the intersection of moving averages. Also, another great thing is that this strategy can be basically used on all types of binary options as well as on all currency pairs. The signal for implementing the purchase and sell is usually calculated at an interval of not less than one hour.

This strategy employs several instruments so that the trader can see a buy or sell signal. One of the most used tools in this strategy is the Exponential Moving Average (EMA).  Then there is also the Weighted Moving Average (WMA), with a periodicity of 12. Then the other instrument is the RSI indicator with a periodicity of 21.

The EMA are usually two; with frequencies of 18 and 28. These two EMAs form a tunnel of two red lines. This tunnel helps in defining the start and end of a trend. Then the Weighted average with the periodicity of 12 shows the time that traders should start trading. The tunnel lines also help one in determining the current active trend in the market.

Before purchasing or selling traders need to understand that the purchase and sale of binary options can only be made when the formed tunnel shrinks until the lines almost combine into one.

The purchase of a “call” binary option is possible if the weighted averages (WMA), of a periodicity of 5 and 12, cross the tunnel that is formed by EMAs. The actual signal for the purchase is when the WMA with the frequency of 5 crosses the WMA, with a frequency of 12.

On the other hand, to purchase a “put” binary option, the trader should look for the time when the weighted moving averages with intervals of 5 and 12 cross the tunnel that is formed by EMAs. The actual sell signal appears when WMA with a periodicity of 5 crosses the WMA with a periodicity of 12 while moving from top to bottom.

However, while the trader is looking at the above-described signals, the trader should also look at the RSI indicator. The trader should only sell if the RSI indicator is below 50 and buy only when the RSI indicator is above 50.

Volatility Tools

Volatility is the measure of the swings as the market prices react and the rate at which these swings change. If a market is said to be a high volatility market, it means that that market has major swings and it is said to be more unstable. On the other hand, if a market is less volatile, it is considered to be more stable since the rate at which the swings change is reduced.

With a high volatile market, it is usually easier and faster to make larger profits with relatively less amount of money since the ROI is in most cases much greater. However, there is usually a very high chance of making the wrong analysis of the market.

If a trader happens to ignore the volatility of the underlying market he or she will in many cases find himself or herself applying the trading strategies wrongly.

The most applicable strategies in markets that are highly volatile: out-of-the-money (OTM) trades and deep-out-of-the-money (DOTM) trades. These two have higher chances of winning because the price savings are more. However, extremely highly volatile markets act as a signal for market reversals.

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References and Further Reading:

  1. Real Options Analysis: Tools and Techniques for Valuing Strategic (Johnathan Mun)
  2.  Evaluation of strategic investments in information technology (Eric K. Clemons)
  3. Strategic Investments and the Development of Multinationals (Ignatius J. Horstmann and James R. Markusen)
  4. Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market  (Øystein Foros)
  5. Strategic investments in Japanese corporations: do foreign portfolio owners foster underinvestment or appropriate investment? (Parthiban David, Toru Yoshikawa, Murali D. R. Chari, Abdul A. Rasheed)

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