Day trading binary options
What is Day Trading?
Today, investing and trading are becoming a common way of making money. There are many different types of assets that can be bought: stocks, futures, bonds, etc. Binary options are a relatively new industry but already quite diverse.
Binary options is a financial agreement that does not involve the direct purchase or sale of an asset. In fact, it is just a document fixing the forecast of how the rate of a particular asset will behave in a certain period of time. The underlying asset can be a currency, a stock or derivative, a commodity or a bond, or even the weather. Today there are more than ten different types of binary options.
All binary options are based on the same principle - to predict whether the price will go up or down.
All binary options have profit percentages ranging from about 60% to 80%. The difference between the various binary options lies in the additional terms. They are called binary options because each trade has two possible outcomes - 'higher' or 'lower'. On the other hand, the trader gets different betting conditions to expand his/her forecasting possibilities. Correspondingly they have the following types of binary options:
1. Up/Down Option Let's say you buy a Call option, expecting the currency to rise. The price at which you buy this option is the Strike price. If by the time you expire the option price is higher than Strike price - you're in the money. On a Put option, it's the other way round.
2. "One Touch. When you select an asset and expiry time in this mode you also have to decide if the price of the asset will touch the level offered by your broker or not.
3. "Above Level. With "Above-the-Level", to make a profit you have to make the price pass the level you've specified and stay there until the expiration time of your option.
4. "Border" In this mode, the broker will ask you to choose if the price is in the specified range by expiry, or out of the specified range.
Binary options are of different types, based on expiry times.
Binary options with an expiry time of 5 minutes or less are called turbo options. This type of turbo options trading is only recommended for experienced traders who have the skills to make really accurate forecasts about the price movements.
The next longest type of commerce is day trading binary options. Beginners are advised to choose such mid-term contracts, having time intervals from 1 hour to 1 day. Such tactics will help you to:
- determine general trends and use them as a guide to enter into positive contracts;
- use most of the well known and proven strategies, most of the time not focused on binary options with an expiration time of 5 minutes;
- have more free personal time, because you do not have to spend time at the monitor and make bets every 5 minutes.
Binary options day trading is when all trades are opened and closed within the same day. That is, there is no overnight rollover.
Intraday traders rely mostly on technical analysis of the market. Fundamental analysis, which would include news and economic changes, is often useless when it comes to a stable asset. However, if important political or economic news has just been released, it can drastically change the value of e.g. currency or oil. That is why a strategy which combines both types of analysis is considered ideal.
Many traders, especially intraday traders, try to work during the release of important statistics and other news. At this time market activity usually rises and volatility can be significantly higher. Sometimes trends reach 100 pips or more in just a couple of hours.
Technical analysis for binary options day trading
Binary options day trading requires sophisticated analysis techniques, such as the use of indicators and charts. Technical analysis is an essential part of successful options commerce. There are many strategies that are based on both news and mathematical indicators. As with other forms of trading, to succeed you have to choose the right tool and use it as much as possible. But remember that indicators and charts are just helpers, they cannot give an exact picture. Let us look at the most famous technical analysis tools.
The technical analysis of binary options includes chart analysis and indicator analysis.
Graphical analysis is the analysis of price charts by drawing various lines which help predict future price movements. There are several types of charts.
The first and simplest are the line charts, where price is represented as a curve. Line charts are low-informative, so they are rarely used by experienced traders. The main advantage of line charts is that they allow you to clearly see the technical analysis patterns.
The bar charts are popular among traders worldwide. Each bar on the chart shows how price changes over time. Bars are just as informative as candles - they show open, close, maximum and minimum prices over a period of time.
The most popular chart type among traders is the Japanese Candlestick chart. Unlike line charts, Japanese Candlesticks are the most informative. Each candlestick contains information about the level of opening, closing, minimum and maximum for a certain time. The body of a candle is a rectangle which is drawn between the opening and closing prices. The shadows of a candlestick are the vertical bars at the top and bottom, these are the maximum and minimum price values. The body of a candlestick is shaded in black if prices have fallen over a certain period of time. Conversely, the candlestick body is not shaded if prices went up during the trading period.
There are different indicators which are used by traders. Mathematical algorithms track quotes and give market signals. The tools help in determining the direction and strength of the trend, the extent to which the asset is overbought or oversold, and possible reversal points.
The most popular indicators are:
1. MACD. One of them is fast, and it shows the trend in the short term, and the other is a slow moving average reflecting the longer term trend. By the behaviour of the moving averages a trader can determine whether the market is in a bearish or bullish trend.
2. Stochastic. This tool is used for determining the trend direction and predicting the reversal of the trend. We see two lines K and D on the diagram, which most of the time move between the 20% (lower is the oversold area) and 80% (higher is the overbought area) levels.
3. Moving average, it shows on the price chart the average value of the underlying asset for a certain period of time.
4. RSI. In this algorithm, the overbought area is above 70, so when the RSI rises above this line, we can assume that price will fall. The oversold area is below 30, so when prices move below this line, a rise in price is possible.
5. Bollinger Bands is an indicator formed by three moving averages, one of which is central, and the other two are equidistant from it. The higher the volatility of the market, the wider the channel, and vice versa.
As a rule traders use one or several indicators for their strategy.
For best results, combine several types of analysis.
Technical analysis is an important element for success in day trading binary options. If you use the right methods to identify trends, you will be able to determine the best times to trade. When you use indicators, it is vital that you understand the way the information is interpreted and understand how they work with your commerce style. This will enable you to establish a clear strategy and avoid mistakes when trading options. Fundamental analysis will confirm or deny the charts and signals.
How to start day trading binary options in Nigeria?
Here are some tips to get you started with day trading binary options in Nigeria. Start by opening a demo account with an online broker. When you are satisfied using your demo account, you can open a real commerce account and start real commerce. Read more about it.
First of all, to become a fully fledged market participant, you have to go through the online broker platform registration.
It will take you a couple of minutes. Once you have signed up, you will be able to create a live or demo account. In addition to accounts, all the benefits of the site are available to you. These include the mobile app, news, video tutorials, charts and indicators, customer support, etc.
If you choose to open a demo account, you do not need to invest your own money. The virtual money will be automatically deposited into your account, and you can use it at your discretion. You will be able to get to know the platform, explore the trading terminal and gain experience and knowledge. Here you can decide which product you want.
Once you are comfortable enough, you can then open a real account and start trading. You will then have to make a deposit into your account, and you can then go ahead and buy the asset you want. Be careful not to invest all of your capital. Start small and gradually expand your account.
If you are just beginning to learn how to trade, then you should limit yourself to one trade at a time.
You need to be an expert in every trade you make. From lack of experience you simply cannot control all your bets, so be smart about your investments.
You can use old strategies, schemes and algorithms, or you can gradually gain experience and try to analyse the market yourself. Charts, indicators, oscillators and economic calendar are only a part of the list of useful and important auxiliary tools for a trader. Learn to work with them from day one of your decision to enter the market. With time persistence and patience will yield results.