Trading short term binary options can be quite an exciting way to make a living. However, in order to be consistently successful, you need both a plan and the right mindset.
The plan must contain the following elements:
- How much you will risk on each trade
- What exact chart setups you require before executing a trade
- Which timeframe you prefer to trade on
The Advantages of Short Term Binary Options
The most appealing feature of these positions is, that you know the result within a very short time frame. You don't have to wait all day, or up to weeks for your trade to pan out. For the active trader, short term binary options are an alternative to day trading.
Binary options are very different to regular (vanilla) options in that, once they have been executed, there can only be one of two outcomes. The trade will either win, or lose. If it wins, you will typically receive between 75 and 90 percent profit on the trade. This is an excellent result of course - but if the trade loses, you forfeit the amount you've risked.
This effectively means that, for short term binary options trading to be profitable overall, you need both a good strategy together with proper money management.
The strategy should be one which has proven to return at least 8 out of 10 winning trades. Remember, that if you're losing 100 percent of your money on losing trades but only making 75 percent on winning trades, your winning trades will need to exceed your losing ones just to break even.
Some brokers offer 90 percent profit on certain short term binary options positions (usually on the 60 second binaries) and this reduces your required win/loss ratio in order to be profitable.
Short Term Binary Options Strategies
Here are two specific strategies for you to evaluate. The first one is on a 60 second expiration and the second one, a 5 minute binary options strategy.
60 Second Binary Options Strategy
Below, we have linked to a video which explains this strategy. This neat little 60 second strategy is one that I've found to be quite profitable.
You need to have 1 minute charts set up with Bollinger Bands using the 20 period setting applied to the candle close. You look only at charts where the Bollinger Bands are evenly spaced - i.e. not closing together and not expanding. If the trend direction indicated by the bands is sideways, that's even better. But if its angle is slightly up or down, that's ok too - but not too much.
Next, you look for 3 consecutive candles of the same colour - and here's the important part - these candles must have bounced off one of the Bollinger Bands (or close enough to them) and are heading toward the other one.
The best trades are found when these 3 candles are fairly evenly sized, so if you get a huge one among them, then the momentum may have already been washed out before the 4th candle.
Watch the video to see a demonstration of how this works.
5 Minute Binary Options Strategy
This short term binary options position is a bit more stressful to watch because it's over a longer timeframe. I haven't found it as consistently profitable as the one minute version above, but have provided it for information purposes.
This video Demonstrates how the 5 Minute Strategy works