About adapting currency strategies for binary options
The foreign exchange market is replete with a variety of trading strategies. Whatever trading style a trader follows, it is always possible to find a profitable system - from scalping and pipsing to long-term trading. Many trading strategies have already passed the age of several decades, while remaining profitable and effective.
The binary options market, as compared to the currency market, is much younger and so far cannot please the trader with a huge number of trading systems. However, all new is well forgotten old, and many traders are adapting strategies for the foreign exchange market for binary options trading.
In this article we will tell you, How to adapt currency trading strategies to the binary options market.
Differences between currency trading and BO trading
In order to adapt a strategy for binary options, it is necessary, first of all, to clearly understand the differences between the two markets.
There are two key differences between the binary options market and the foreign exchange market:
- On the foreign exchange market, a deal can live as long as you want. In the BOO market, all contracts have a clearly defined time of validity (expiration time);
- On the currency market, profit and loss depend on take profit and stop loss levels, which are set by the trader. In the situation with binary options take profit and stop loss orders are absent in principle, profit and loss have a fixed size.
Hence the peculiarity of binary options trading: there is no need to determine which price must pass for an order to close at a profit or loss.
Otherwise, the essence of trading in BO is no different from the classical trading - you need to correctly predict the direction of the asset price and open a deal in the corresponding direction:
- Call - if the price is projected to rise;
- Put - if the price is predicted to decrease.
What trading strategies are suitable for adaptation
Based on the fact that the basic principle of trading "predicting the price direction" remains unchanged, almost any trading system can be adapted to binary options trading. The most popular ones are:
- Trending strategies - the simplest and, at the same time, the most effective systems, because it is much easier to predict the direction of the price within the trend.
- Breakthrough strategies - systems, focused on the construction of important price levels and channels (static and dynamic) and the opening of a deal when the price breaks through them.
- Scalping and Pipsing - systems that involve a large number of trades with a very short lifetime and a small profit of each trade.
- Strategies based on patterns of technical analysis - Systems based on the working off of the reversal and trend continuation patterns (Head and Shoulders, Double and Triple tops, Flag, etc.), which allow you to predict the price movement with high accuracy.
Nevertheless, if you "saw off" the setting of stop-loss and take-profit levels from these strategies, they will not automatically become suitable for BOO trading. And there is one reason for that. time.
Time is key in adapting strategies
As we said above, on the foreign exchange market, a trade can live for any amount of time. Therefore, classic strategies can be applied to trade on any time frame.
The presence of expiration times in binary options, strictly limiting the lifetime of the position, does not allow you to trade on arbitrary timeframes, and dictates the need for their proper selection.
Accordingly, the main task in adapting the strategy to binary options trading is the correct comparison of the price direction on the selected timeframe and the expiration time of the BO. In other words, after the expiration time, the price on the specified time interval must move in the right direction.
Timeframe for BOO trading
At the moment, there are a number of methods and techniques to determine the time interval for trading securities, but we have already talked about some of them earlier. Therefore, we will focus on the tried and tested by traders long time ago universal timeframe method.
For this purpose it is necessary to test the trading strategy on a demo account, cent account or even history. According to the rules of the strategy, it is necessary to open trades within a certain period of time, sufficient for the accumulation of statistics.
Next, we need to select profitable trades for analysis. We analyze the lifetime of each trade (before its closing at take profit or in manual mode), compare it with the time of other trades and determine the average value. This average value will be the optimum time frame for trading binary options.
Adaptation of the Manifestation Rules
Fortunately, there are no particular difficulties with the rules of money management when adapting a strategy for trading in BOO. Everything is even a little easier, because the profit and loss amount is known in advance. So, the trader has to follow the rule of choosing the volume of option, which would not exceed the level of risk specified by the trader. As a rule, this level is in the range from 1 to 5%.
Nevertheless, there are nuances with trading strategies built on the Martingale method. When using them to trade binary options, it is recommended to use a special martingale calculator for binary options, many variants of which can be easily found on the Internet for every taste.
Conclusion
During the existence of trading an enormous number of trading strategies has been created, so the average trader is unlikely to come up with something fundamentally new. And there is no need to reinvent the wheel?
It's much easier to use a strategy you've been familiar with for a long time, one that consistently brings you profit on the foreign exchange market, by adapting it to binary trading. It's a lot easier than you think, and systems adapted for BOO often not only retain their effectiveness, but even increase it.
For quick reaction to news and financial news, subscribe to Telegram feed.