Binary Options Review

Selected Tools to Improve Your Binary Options Trading

There is a wealth of binary options trading tools and indicators available to help new traders to improve their chances of trading profitably. Understanding how these work, and how they can improve the probabilities of profitable trading, can be well worth learning and applying to existing trading strategies. A large number of the available tools is provided directly through binary options trading platforms and include features which change the way that regular binary options are traded. These add another dimension to binary options trading beyond the straightforward higher and lower options and enable traders to gain additional control over their positions. When applied correctly, these can prove to be powerful tools and it is well worth exploring how these can enhance the experience of many traders.Additionally, there is a huge number of trading indicators which can be incredibly helpful in providing signals of future price movements. They are often applied in greater detail by third-party software programmes but are also available on some binary options trading platforms. These indicators range from the highly popular and well-known charting tools used by professional traders to custom-designed individual indicators for highly-specialised trading. The importance of all indicators for binary options traders, however, is their ability to pre-empt future price movements higher or lower. Trading with some of the most popular indicators can provide an excellent way to pinpoint profitable opportunities.

Binary options trading tools: The rollover

Beginning with some of the most popular binary options trading tools, the rollover is certainly up there as one of the most effective in a number of select situations. The rollover allows traders to effectively extend the expiry of their binary options beyond the originally pre-determined time. This is not, however, a free tool and will usually require an increased investment, representing a percentage of the original. The rollover is an excellent tool which many binary options trading platforms provide but it needs to be used selectively. Rather than risking an increase in the investment when a trade is failing, the rollover should be used whilst the position is out of the money yet requires more time to develop. This tool will favour traders with experience who are able to analyse market movements, but it also needs to be used when there is a good chance that the position will become profitable rather than a last resort for a failing trade.

Binary options trading tools: The Close Early tool

This is another excellent trading tool which can also be used whilst the binary options are still active. Unlike the rollover, it can be used in both positive and negative trading situations and, as the name suggests, it allows a trader to liquidate binary options before their expiry time. Positions can therefore be closed early in two circumstances; the first being when a trader needs to cut losses and close a losing position and the second in order to take early profits on binary options in the money. The first situation will be favourable if closing the position will free up trading funds to purchase other binary options. Although binary options technically can become profitable right up to the point of expiry, it becomes obvious that certain market moves will make the prospects for recovery very unlikely.The second scenario allows binary options to be closed early when they are in the money for a lower profit than if they were allowed to expire at the pre-agreed time. The rationale for doing this is when continuing to hold the binary options creates the risk that they will slip out of the money before expiry. The value of the binary options when closing a profitable position early will depend on both how long remains to the original expiry and also where price is in relation to the strike price. As a general rule, the further the price and the closer the options to expiry the higher the value of the binary options pay out.

Binary options tools: The Protection Rate

Although this is less of a tool relative to the Roll Over and Close Early features, the Protection Rate is a feature provided by some brokers with the aim to reduce a traders risk in the market. The way that this works is that it offers an insurance percentage of between 5-15 per cent on all binary options expiring out of the money. This means that an initial investment of 100 USD may return up to 15 USD if the trade fails. Despite this sounding like a fairly small amount, over time this can be the difference between profit and loss on a long term basis. Additionally, given that many platforms offer up to 85% returns on in the money binary options, combining this with a 15% Protection rate offers a very favourable 1:1 risk to reward ratio.

Binary options tools: Fundamental analysis

Fundamental analysis is not a tool which is directly available through a platform but it’s a technique of analysis that traders use to determine the underlying direction of markets. This analysis uses the basics of what drives a market, primarily news and data, and interprets this to determine the level and direction of influence that it has. Trading platforms, therefore, which provide live news feed assist traders with their fundamental analysis and are a powerful feature for those who can interpret the market reaction to news events. Generally, these events are segregated into two groups; those news events which are planned, such as company data releases, and those which are unplanned. Understanding the potential impact on either is in itself a tool to interpret the future direction of price and can be used very successfully by binary options traders.

Binary options tools: Technical analysis

Technical analysis focuses on chart patterns and indicators to determine trading decisions. Due to its popularity, many of these are very powerful and are used by both professional and home-based binary options traders. There are a number of chart patterns and key indicators which all traders should be aware of and which may substantially increase the probability of success. Some of the most popular and effective of these are outlined below.

Binary options indicators: The MACD

This is a very powerful indicator used by many professional traders and comes as a standard feature of any charting software package. It falls into the category of a momentum indicator which means that it can function as an indicator of the strength of the near-term market. Momentum indicators have an amazing ability to predict future price movements, as they represent the current strength of the price and are excellent tools to use for those looking for price reversals.The MACD operates most effectively as a histogram, or set of bars which rise higher or fall lower than a central ‘zero’ line. When the bars rise higher this indicates positive momentum and lower represents negative momentum which can be interpreted as price moving in a similar way. The technical way in which this histogram is created is the convergence and divergence of two moving averages and the subsequent distance between these.Interpreting the MACD in order to look for an indication of future price movements on which to base your trade can be done in a number of ways. One of the most popular strategies for binary options traders is to look for divergence between the MACD and the current price. A very probable indication using this technique is if the price chart shows a new high but the MACD disagrees with a lower high. At this point it would be likely that purchasing binary options in anticipation of a fall in price may be a profitable trade. Alternatively, simply trading the MACD movements higher and lower as it crosses the zero line is also a popular way to seek profitable trading opportunities.

Binary options indicators: Oscillators

There are a large number of oscillators which are available to binary options traders and which also fall into the category of momentum indicators. Oscillators are designed to move (or oscillate) between higher and lower levels which provide a strong indication of when a market is becoming too hot or cold. Typically, oscillators such as the Relative Strength Index or Stochastic oscillator, operate on a scale of 0-100 with an upper indicator line of 70 and a lower line of 30. As price moves higher and lower, the oscillator will represent that on this index of 1-100. When price moves above 70 it is a clear indication to traders that the market may be becoming over-bought, signalling that a reversal in price may be due. Similarly, when it moves below 30, the market may be over-sold, and a rise in price is very likely to occur.Oscillators can therefore provide binary options traders with an excellent insight into the potential future direction of a market. Purchasing binary options either above 70 or below 30 can prove to be very effective if the expiry time is estimated correctly. Given the high probability of market reversals at these levels oscillators are considered one of the most popular indicators and also come as standard on all charting software.

Binary options indicators: Fibonacci

Fibonacci’s findings operate in all walks of life as the mathematical ratio that has been proven to exist in both the natural and man-made world. It consists of a set of ratios which govern the rules of nature, from the space between the swirls on a snails shell to the renaissance art masterpieces. The basis for its existence in trading focus on the natural attraction that all living species have in common with this and it has been taken up by traders as an especially effective way to anticipate market retracements.Fibonacci levels can be used on all price charts and are most commonly applied to the most recent high and low (i.e. the price swing) in order to establish where the future price will find support and resistance within this. When applying the Fibonacci tool to the chart it will produce a series of levels based on a percentage of the price swing. As price pulls back it is surprisingly clear to see how it reacts with these ‘natural’ levels which can, importantly, be seen as reversal points for binary options traders.

Binary options indicators: Chart patterns

One very important element in technical analysis is the study of price patterns within charts. This is a huge area with many different patterns available, however, there are several key patterns which all traders should learn to identify. Price patterns are formed by the bar charts on a chart creating identifiable, and historically supported, formations which indicate the future movement of the price. Some of these patterns are so powerful that they have become a self-fulfilling prophecy. This happens as thousands of traders identify the formation of a pattern and trade simultaneously, powerfully pushing price in the anticipated direction and creating very profitable opportunities to trade.As an example, one of the most popular trading patterns for binary options traders to be able to spot are ‘double top and bottom’ trading patterns. Double tops occur, for example, when price moves to a new high before retracing. Following the retrace it will try to again to move higher in order to maintain the market momentum but will form a lower-high. The pattern it creates is known as a ‘double top’ due to the fact that the momentum is clearly waning. The price is unable to move higher than the first higher high and the bears are very likely to set in to push the price lower very soon. At this point it provides an excellent opportunity for binary options traders to recognise this pattern and purchase sell options.

Trading with candlesticks

Following chart patterns, candlesticks are one of the most powerful ways for binary options traders to pinpoint potentially profitable opportunities. All charting software will has the option to apply candlestick charts rather than the regular bar charts and they can provide a much greater insight of the general market sentiment. ‘Candlestick’ analysis has been around for centuries since being devised by Japanese rice traders during the 1500’s. The fact that they are still used by many professional traders today is a testament to their powerful predictive qualities.Candlesticks are formed by taking the opening and closure of a price bar to form a coloured body (the colour depends on whether the bar closed higher or lower than the open). They can also have a ‘wick’ pointing from both the top and bottom of the candle, which shows the daily range of the candle. The combination of the size and colour of the body and that of the wicks will determine the strength and sentiment of the market as well as indicating which way price is likely to be heading in the near future.

Candlestick analysis: Engulfing candlesticks and inside bars

Of all of the candlestick patterns, several are considered to be the most reliable and form the core of candlestick analysis. These include ‘engulfing’ candlestick and ‘inside bars’. Engulfing candles can be seen on all price charts and on any timeframe, doing exactly as their name suggests. An engulfing candle is described as one which is entirely longer than the previous candle, having a lower low and a higher high. This tells the trader that either the bulls or the bears have taken control of the price and a movement in the prevailing direction of that candle is very likely. These candles are most powerfully found at the end of a large price movement with the engulfing candle signifying a reversal in the trend. Similarly, if these are found near to a popular support and resistance level they reinforce that the support level is very much being adhered to.Inside bars, on the other hand, can be considered as both indecision bars and also reversals. They are the opposite to engulfing candles in that they will not move higher or lower than the previous candle. They represent a momentary consolidation when the market considers moving higher or lower and are most powerful when several inside bars occur together. In this instance binary options traders can wait for a breakout either higher or lower to confirm the short-term market trend and a potential trade opportunity.

Candlestick analysis: shooting stars/pin bars

Shooting stars, often also known as pin bar, candlesticks are perhaps the most popular and profitable pattern for pre-empting market reversals. They are defined by a long wick in one direction which is at least three times the length of the body of the candlestick. These are at their most powerful when they occur at key areas of support and resistance with the long wick representing the price being rejected at these levels. Shooting star candlesticks are therefore a strong indicator of a market reversal when they occur after a strong price move. For binary options traders, this provides an excellent opportunity to purchase sell or buy options in anticipation of a market reversal.When trading any candlestick pattern it is important to acknowledge that these are at their most important when they coincide with other trading indicators. Whilst a popular candlestick pattern located at an area of support or resistance is a powerful indicator in itself, the combination of additional indicators always helps to confirm a trading position. An example of this is to combine candlestick analysis with oscillator indicators to reinforce a trading decision. When the candlesticks confirm that a price reversal may be close, if this is supported by an oscillator in its over-bought of oversold area, it will confirm that the trade has a very high probability of success.

Summary

Binary options platforms offer a range of tools for traders to use which will enhance their trading experience and provide additional profitable trading opportunities. The most popular of these are the Rollover and Close functions which allow trades to be shortened or extended depending on the circumstances and prospects for the options closing inhe money. Additionally, many brokers will offer traders a Protection Rate which acts to provide a small percentage of the initial investment back to traders for binary options which close out of the money. Although this seems fairly insig ificant on a single trade basis, over time this may provide a profitable edge.Beyond these tools, fundamental and technical analysis exist to help traders to make the correct trading decisions. Whilst fundamental analysis looks at the main drivers dictating the direction of a market, technical indicators can be applied to price charts to pre-empt future price movements. Oscillators and momentum indicators are some of the most popular indicators for binary options traders and the addition of candlestick analysis as reinforcement of these signals can provide very powerful binary options trading strategies.

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