When it comes to binary options trading strategies, some people prefer to rely on a little more than gut instinct and the historical patterns of news events and their effects on asset prices.
For those who are seeking something a little more tangible, technical trading is one option.
There are many different trading strategies that fall under the umbrella of technical trading, but they key feature that binds them together is the reliance on charts and graphs to determine what is likely to happen next with asset prices.
Trading moving averages is one of the more popular technical trading strategies. As binary options trading has exploded in popularity and the derivatives market has expanded at breathtaking pace, technical trading is seen as a more ‘professional’ way to trade.
Let’s take a closer look at trading moving averages and explore what we need to do as traders to incorporate it into our binary options trading strategies.
What is Trading Moving Averages & How Do I Use it as One of my Binary Options Trading Strategies?
Good question! Trading moving averages involves determining the average price of an asset over a given time period first. After that, we have to analyze where the current price is in relation to it and decide which way to trade.
For example, let’s say we decide to trade on the 30-day moving average of Ford Motor Company. First, we need to bring up a chart showing the price for the last 30-days. We can do this at Yahoo Finance or any of the other financial charting services online.
Next, we need to adjust the setting on the chart to show the 30-day moving average. This plots a line on the graph showing us the average price per day. It should be moving in real time to ensure absolute accuracy.
Once this has been established the actual trade is reasonably simple:
When the price breaks ABOVE the 30-day moving average, we place a call option, betting that when our option expires the price will be above the current price. It’s been noted by traders over a long period of time that when prices break through the average, they tend to go on a little rally.
When the price breaks BELOW the 30-day average, on the other hand, we need to place a put option. We’re now betting that when the option expires the price will be below the current price. Again, it’s been noted by experienced traders that when the price of an asset falls below the moving average, it tends to keep falling for a while.
Simple enough, right?
Well, not quite. The complex part is deciding how long to take our option for. Since moving averages can be determined on any time line traders choose from a few minutes to a few months, you never know how many traders may push the price back in the opposite direction before your option expires.
For example, if you’re trading the 30-day moving average and you place a put option in place due to expire in 3 hours because the price of Ford has fallen below the 30 day average, there’s nothing to say there are thousands of other traders out there betting on the moving average for the last 30 minutes. If the price of Ford dips above their chart’s average, they may bail in and place call options, forcing the price back up before your option expires.
Remember, once options are placed and times have been decided there’s nothing you can do. The option has to be ‘in the money’ at the time it expires for you to realize a profit. Even if things have gone your direction for most of the time the option is open, they could change at any moment up until the option expires.
That’s just part of the risk of trading binary options. Risk should always be factored in to your binary options trading strategies and anyone who tells you it’s possible to win every trade is a snake-oil salesman, and you should run!
Remember, even when using technical trading methods, binary options trading IS STILL GAMBLING. We can dress it up whatever way we like, use tools to enhance our chances, and create complex charts, graphs and symbols to represent points in time and price movements, but in the end, no matter what, we’re still stepping up to the table and having a punt.
Keep that mindset when trading binary options and you’ll have a lot more fun. Technical trading strategies can definitely enhance your odds and give you a much better chance of winning a given trade, but at the end of the day there aren’t any guarantees.
Trading moving averages is one of the more reliable and widely used binary options trading strategies and can help you spot opportunities in rel-time as they arise. It’s used by everyone all the way up to Wall Street kingpins, so it has a fair degree of credibility.
Remember that there will be other traders out there using the same tools and looking for the same trends, and some of them have billions of dollars at their disposal and pass themselves off as ‘bankers’ rather than professional gamblers. If they spot the same change in direction as you, they are likely to place some serious weight on the price and you can ride the wave all the way up or down and enjoy a nice profit from doing so.
Also remember that the longer the time line, the more significant. You won’t catch big price movements if you’re trading on the moving average fort the last few minutes, but if prices cross the 30-day line, that’s a whole different ball game and has a lot more significance and potential in terms of trades that can be made.
Next we’ll look at another technical options trading strategy.