So. You want to trade Binary Options.
Why wouldn’t you?
After seeing all the hype about how everyone making a killing trading binary options, It’d be foolish not to try.
Let me warn you. This is not easy as it sounds. You have to put some solid effort to make this work.
No, you cannot be rich overnight. But this can help you make some dough if you play the cards right.
And of course, you can lose money if you can’t control your emotions (fear, greed).
Oh crap! Feels risky, right? Yes, it is.
Always, always invest what you can lose.
Here’s how you go about starting trading…
- Learn it.
- Do the thing
No, I am not kidding. It is the learning part that is hardest. This guide is all about learning how to do it.
Who am I to teach you?
Over the past five years, I’ve had the fortune to work with some of the best technical traders around the world. Granted most of them are Forex traders. But the most of the trading rules apply for both the markets. Learn the difference between Binary Options vs Forex.
Now, why am I doing this?
First I’ve made (and lost) fair share of monies doing this. And learned a ton of things along the way. This is my way of documenting them.
And most of the advice out there is complete crap.
What is Binary Options?
Binary options is basically making money off of predicting the direction of a market in a period of time.
If you think EUR/USD exchange rate is going to increase in next few hours you can bet on it.
If you think the price of GOLD is going to decrease in next few days, you can bet on it.
Assuming your prediction is correct. You make a percentage of what you invested. If your prediction is wrong, you’ll lose your investment for that particular trade.
Take Billy’s story, for example…
He placed an order of $100 betting price of GOLD will go up in the next day. And it did.
He made $180 back. Initial investment of $100 and 80% profit.
Now, if his prediction had failed, he would have lost all of $100.
Simple as that.
I know what you are thinking..
How the hell am I going to predict if EUR/USD or GOLD is going to increase or decrease? I don’t have a degree in finance bro.
No, you don’t need a degree in finance or statistics. You are not applying for a job in a hedge fund. 😛
There are different ways (known as trading strategies) to predict the market. I will cover these later.
Binary Options has gotten a bad rap in some circles because of unethical brokers and affiliate marketers who promise for “easy money” which leads for users to lose all the money.
Let me be clear on this.
Binary options has risk involved. Your capital is at risk.
It looks easy. But it is not. You need have tremendous discipline.
You might as well stop reading and go watch some cat videos on YouTube if this message is not clear. 🙂
Now if you understand this and agree to invest only what you can lose, read along.
Binary Options Brokers
You need a platform to trade right? There is a gap between you and the market. This is where brokers come in. They fill the gap by giving you a platform to trade on.
These binary options brokers basically trade the other side of your trading.
They provide you a platform which you can
- Deposit money you are going to invest
- Analyze and predict the market of different assets
- Make profits and withdraw them
There is a ton to cover on brokers, which I have covered in the following articles.
Since this is a quick start guide, let’s get our hands dirty.
I can almost hear you thinking … I don’t know anything about how to trade binary options, Isn’t there a chance for me to scr*w things up and lose money?
Yes, there is.
Only if there is a way to learn to trade hands on without losing money right??
Fortunately, there is Binary options demo accounts.
Demo accounts allow you to practice trading without any risk. You’ll be using virtual money. (Fake monies)
So the profits or the losses are not real.
How to get a Binary Options Demo Account?
Most brokers do give demo accounts.
Some brokers do not accept traders from some countries for various reasons.
We are going to use IQ Options for this guide. We have vetted them and we trust them as a valid broker.
But they do not accept traders from following countries
Australia, Belgium, Canada, Iran, Israel, Japan, Latvia, North Korea, Pakistan, Palestine, Russia, Sudan, Syria, Turkey and the USA.
If you are from one of the above countries, we recommend you to check our broker picker tool and find a trusted broker.
If you are not from one of the above countries, you can go ahead with iqoption.
The steps are equal for any binary options broker you are going to trade.
Let me walk you through…
Step 1. Head over to iqoption. (opens in a new tab)
*RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK
Step 2. Fill the Sign-Up form – Make sure you are filling real details
Step 3. Click “Open an account”
Step 4. You might want to verify your email address by clicking a link sent to your email. Be sure to check the spam folder tho. (Gmail always thinks emails are spams when it comes to trading :p)
That’s it now you are ready for DEMO trading.
You can go to your trade room to start demo trading.
Be sure to check the following short clip.
You may have heard few new terms that you aren’t familiar with. I know that’s a lot to take in, but bear with me…
Binary Options Beginner Fundamentals
I get it.
You don’t want lengthy and boring lessons. I am trying my best to keep this short and sweet.
But sometimes, you just have to get your head around stuff like this to understand more interesting things such as juicy information on how to predict the market?
Let’s cover the basics quickly, shall we?
Step 1. Select an asset to trade
An asset is something that as economic value. Basically, these are the things you are betting (not betting exactly, predicting the direction of value) on.
These assets can be Forex (EURUSD, GBPUSD) rates, cryptocurrencies (BTC, ETH), stocks (AMZN, APPL, GOGL) or commodities (GOLD, OIL).
One important thing when picking an asset is the profit percentage it gives. Normally it goes from 60% to 90%.
Step 2. Predict the price movement
Different brokers use different words for the order types.
- Call or Put
- High or Low
- Up or Down
- Higher or Lower
It is basically the same thing.
Call – You predict the market is going higher
Put – You predict the asset value is going lower
Step 3. Decide the expiry time
Each binary options trade has an expiry time that you decide.
At the end of the expiry time, you either
Win back your investment + investment * profit percentage
or lose your investment.
Expiry time can go from minutes to days (or even months).
If you are a beginner, it is best not to trade with a short expiry time.
Step 4. Decide the amount you invest
Believe me, when I say, you don’t want to scr*w this step…
when you see some winnings, your greed card will pop up. You will try to win more by investing more. This is a mistake.
when you lose some monies, your fear card will pop up. You will try to cover your losses by trading even more. And the next thing you know, you have blown away your account.
The best advise there is, invest a maximum of 2% of your total investment per trade.
Step 5. Collect the winnings (prepare for the next trade)
This is the best part.
You collect your winnings. (or losses)
When it comes to this, you need to know when is it a good time to shut down your laptop and go for a walk.
You need to keep your winnings. You need to handle your losses well.
Always, remember: you can always trade the next day.
You have completed the first step of your journey to learn binary options trading as a beginner.
You are ready to play around with your demo account
We use charting software to analyze charts for the assets you wish to trade. Most of the charting offered by binary options brokers are not enough for any real technical analysis. Unless you analyze the charts very carefully you’ll be just gambling. You do not want that when it comes to trading.
There are a lot of charting software out there, which has its own pros and cons.
We are going to use TradingView. And these are few reasons for it.
- Everything is online. No need to install anything on your PC.
- Charts are solid. Great browser-based charts.
- Easier multi-timeframe analysis.
Go to TradingView Main Page and click “Join for Free”. We use tradingview charts for our examples. Having an account will help you try out these by yourself.
This is how you open an interactive chart.
- Go to the homepage and type the symbol/name of the asset in ticker search bar and click the asset from the dropdown
- Click the big button where it says “Interactive Chart”
That’s it. Now you have a powerful charting platform to do your analysis.
Binary Options Strategies
Are you ready to trade with real money? No.
You don’t know how to predict the market.
If you go ahead and start trading with real money right now, you are basically gambling your money.
You see my point, right?
So, how are we going to fill this gap?
That’s where trading strategies come to play.
The first and most important step of this is to understand candlestick charts. 99.9% of retail traders use candlestick charts to make trading decisions. And there is a reason for this.
It is little tricky to understand when you see for the first time.
But stick with me.
This is how a candlestick chart looks like
You can find a button to view candlestick chart for an asset in any broker platform.
For example, in iqoption
If you are using tradingview, you can select candlestick charts using the top menu
Mainly there are two types of candles.
- Bullish Candles – Market is going upward direction
- Bearish Candles – Market is going downward direction
Any candlestick chart is bound to a timeframe. (15-minute candle chart, daily candle chart etc. )
Each candle represents the price movement of the asset in that timeframe.
This is a short video clip explaining the concept.
I think you get the idea.
Now when I say 1-hour EURUSD chart, picture something like this.
where each candle represents price movement of EURUSD exchange rate for one hour.
It is the same logic for any time frame (1M, 5M, 15M, 1H, 4H, D, W) and any assets (EURUSD, GOLD, …)
Important Note: This is just the basics of candlestick. This is a big topic , and you should learn the rest from the best. Steve Nison's CandleCharts is the best place to learn advance candlestick patterns. He was the one who introduced candlestick charts to the western world.
Multiple time-frame analysis
It is not that complicated if you understood the how candlesticks chart work.
What this simply is looking at different time-frames for signals before entering a trade.
You can change the timeframe of the chart using tradingview or any other charting too.
As you already know single candle represent the price movement of that period of time.
ie: In a 5minute chart – a single candle represents the price movement happened in 5 minutes.
The higher the timeframe, the stronger the signal.
If you have a signal to open a CALL order in a smaller timeframe, but there is a strong downward movement in the closest higher timeframe, that may not be a good signal.
Our advice, try to pick two closer timeframes and stick with it. It can be one of the following.
- 15M and 30M
- 30M and 1H
- 1H and 4H
If you have a strong signal in both chosen timeframes, go for it.
There are two types of market in any type of trading. Let it be Binary Options, Forex or Stocks.
- Trending Market
- Ranging Market
When the market has a clear direction of movement, we call it as a trend. This can either be
- Uptrend – Bullish Trend – Market is moving upwards
- Downtrend – Bearish Trend – Market is moving downwards
You should always look for CALL options in a bullish market, and PUT option in a bearish market.
The key aspect is making your trade in an early trend (start of a trend). Identifying this early signals is important for your success in the binary options world. We can use support and resistance (which we are covering next) to identify these early signals.
You guessed it.
When the market has no clear trend, it is best not to trade the asset. And look for other assets for trading opportunities.
Support and Resistance
This is one of my all-time favorite topics.
If you don’t want to be one of the thousands of traders stuck in the land of lost trades, you need solid support and resistance knowledge in your trading arsenal.
You know what is a trending market and what is a trend from the above chapter.
You can identify support and resistance areas when there is a change in the trend direction.
The principle of support and resistance is,
There should be a reason for the trend to not continue after that price point maybe things got a little bit expensive (resistance) or maybe things got a little bit cheap (support).
And there is a good chance this will happen again when the asset reaches this area again.
So we can,
- CALL options in support areas
- PUT options in resistance areas
Here’s the interesting part…
The more these areas are tested before, the stronger the areas. Better odds of winning the trade.
What are pullbacks and rallies?
If you see the above image closely, you can note few things. The overall trend is bullish (upward).
But the market does not move in one clear line. It moves in a zig-zag pattern which consists of small uptrends and downtrends (pullback).
These movements against the overall big trends are called pullbacks (occurs in an overall uptrend) and rallies (occurs in an overall downtrend).
Moving Averages for Binary Trading
Moving average is the big brother of all technical indicators. Understanding this indicator and how to use it to trade binary options will boost your game enormously.
It is that powerful.
It is one of the most used indicators but least understood.
What is a moving average?
Before understanding moving averages, let’s understand just simple “average”. And then I’ll bring you to the moving average
These are the scores Mr. John has got on a spelling test in the last month:
He evaluates his progress every 5 days by calculating the average.
What is the 5 Day average?
(90 + 80 + 100 + 60 + 80) / 5 = 82
And he got 70 on Day 6
Now the 5 Day average is (80 + 100 + 60 + 80 + 70)/5 = 78
He got 60 on Day 7
Now the 5 Day average is ( 100 + 60 + 80 + 70 + 60) /5 = 74
As you can see these averages changes (moves) every day, hence moving average.
82 78 74
Simple Moving Average (SMA)
All you have to do is to apply the above logic to prices of the assets you are trading. And you have your moving average for assets.
Note: You don't have to calculate moving averages. Any modern charting software (tradingview, metatrader, etc) has the facility to add any type of lines, indicators in one click. :)
Let’s assume we are dealing with the daily chart of EURUSD.
And we are calculating the averages of closing price (like above) for every 5 days continuously. And mark those values in the chart and plot a line connecting these values.
There you go. We have the 5 periods simple moving average for EURUSD currency.
Add another 10-period and 30-period simple moving averages to the same chart and you have this.
Exponential moving average (EMA)
We normally use moving average to smooth the price and to get a clear direction of the trend, so that we can make our binary options trading decisions.
You see, there is a simple problem with currency rates. They can spike up and down once in a while. This normally happens due to news reports and such.
This can throw off a simple moving average.
The solution is to give more importance to latest price.
This is exactly what Exponential Moving Average does. You don’t have to worry about the formula or calculations in these.
Just get this :
EMA is just like SMA, but it averages out the spikes by giving more importance to the latest prices.
How can moving average help you with trading binary options?
As you already know, the price movements are random and can easily give us false signals. What moving average does is smooth it out to see the average value.
Moving average can be used to identify trends, confirm reversals and as support and resistance areas.
Identify trend using a moving average
This is a simple strategy.
If the price is above the moving average the trend is bullish. It is better to only focus on CALL orders when this is the case.
When the price is below the moving average the trend is bearish. It is better only to focus on PUT orders.
Or you can simply say.
If the moving average is rising – Uptrend – Look for PUT trades
If the moving average is falling – Downtrend – Look for CALL trades
Moving Average Crossover and finding trend reversal signals
Moving average is based on past prices. It is known as a lagging indicator.
You will not get a warning in advance if the trend is going to change. It will simply confirm the trend has changed/reversed.
We need two moving average for this binary options strategy. Take a look at the following image.
A fast moving average hugs the price closely. The lower the period of moving average the faster it moves with the prices. The fast moving average represents the short-term trend.
On the other hand, slow moving average contains lots of past data. They are slow to change. The slow moving average represents longer-term trends.
If you decide to use a moving average crossover to trade binary options keep this in mind.
When a fast moving average cross above the slow moving average, that is a signal for a possible uptrend. Look for PUT opportunities.
When a fast moving average cross bellows the slow moving average, that is a signal for a possible downtrend. Look for CALL opportunities.
How to use chart patterns to trade Binary Options?
Remember our aim is to find big movements in one direction (bearish or bullish).
These chart patterns have proven to happen before big breakouts.
They can hint if the price is going to move in the same direction or a trend change is about to happen.
Remember, none of these are fail-proof. But having something like this in our binary trading arsenal can come in handy.
There are a lot of chart patterns Double Top, Double Bottom, Wedge, head and Shoulder, Rectangle etc..
But in this quick guide, I am only covering the most used one of them all.
Head and Shoulders Chart Pattern
This is a strong reversal pattern. We can categorize them into two types. Normal head and shoulder pattern and the inverse. The pattern consists of 3 failed attempts to continue the trend resulting in a reversal.
The normal pattern appears end of an uptrend and you should look for PUT orders around the neckline. It is true the neckline acted as a support. But we are trading the breakout of the neckline.
The inverse pattern appears end of a downtrend and you should look for CALL orders around the neckline.
Some traders like to wait for a confirmation of the breakout before entering the trade.
How to trade Binary Options like a Pro?
Just because you know the basics and few technical trading strategies, it does not make you a professional trader nor you can quit your day job to live off trading.
I am sure you have heard the saying “Fake it till you make it”. That’s exactly what you are going to do here.
Just follow what professionals do, and over time you’ll master the game of binary options.
You know what’s funny?
Professional traders don’t have any “special top secret trading strategy” they follow, they just don’t do the stupid newbie mistakes.
And I’m about to warn you about those newbie mistakes.
What assets should you focus on trading?
Answer: Major currency pairs – (EURUSD, USDJPY, GBPUSD, USDCHF, USDCAD, AUDUSD, NZDUSD)
Here are the reasons why,
These Forex pairs have the biggest inter-day movements, which makes more room for trading. Applying technical analysis (strategies you learned above) works best with forex pairs.
Use longer expiry times
Expiry times vary from 60Sec to Days.
Do not use 60sec (or shorter) expiry options if you are a beginner. That is a recipe for disaster. Small expiry times means, it is more of a gambling than trading. Since the brokers have the edge (< 100 % profit percentage), you will end up blowing your account if you gamble.
If you are just starting out, we recommend you to use 1-hour (or longer) expiry. That’ll teach you how to apply your technical analyses skills and trade (not gamble).
Once you have some experience under your belt, you can move to shorter expiry times such as 15Min.
What is the best time to trade?
If you are following my previous tip of trading only major currency pairs, then it is best to trade when those pairs move the most.
There are four major currency markets, they open and close at different times.
Commonly speaking you can trade anytime between the opening of London market and the closing of New York market.
To be even more precise London-New York overlap is the best time to trade. This is the busiest time of the day.
How long should you trade with a demo account?
Look, demo trading is not realistic.
Don’t get me wrong. If you are a complete beginner in trading binary options, you must start with a demo account get a feel for how all of this works.
And of course, you can plan your next binary options strategy using a demo account.
But there is a big difference between live and demo trading.
We tend to trade very well on demo accounts because we don’t have the emotions blocking from making trading decisions. Things change when it comes to trading with your hard earned money. We are humans and cannot eliminate these emotions completely. We have to practice to control the fear and greed.
What we recommend is to start trading with real money (small investment), as soon as you know your way around the broker and trading platform. Start with small amounts. Build your confidence in your trading. There will be times you will lose few trades continuously. It’s all a part of the game.
Should you take deposit bonuses?
Short answer: Better not to.
If you decide to take bonuses from brokers, be sure to check their terms and conditions before you do. Most binary options brokers require you to trade a certain amount of trades before you can withdraw them.
For example, if you are depositing $5000 dollars and the brokers give you $2500 extra (50% bonus) for you to trade, in some cases you have to trade $200k worth of orders for you to deposit your bonus.
This is little complicated for a beginner. The best thing you can do is just don’t take the bonuses.
Do not fall for Binary Options Robots Scams
This stuffs are just ridiculous. It is unbelievable how can anyone fall for something like this. You will come across those big one-page videos with titles like Quantum code, Millionaire Blueprint, Brit Method etc with a guy in there telling all those stories how he made millions with his super secret strategy and how has he developed his strategy into an automatic software. And you can use it to make a profit as well while doing absolutely nothing. Those actings are just hilarious.
These scammers target new traders who don’t know what they are doing and try to get them sucked into the idea of easy money. All of this for getting you to signup and deposit your hard earned money to one of their shady brokers.
the software or robot?
It does nothing. It’ll just orders PUT and CALL randomly leading you to lose all your money.
They blame the user using one of these usual responses.
- Not enough capital
- You didn’t enable the robot at the correct time.
- You miss that one trade which would have gain you all the loses.
This is just pure scamming. Please do not fall for it. Just enjoy the comedy value if you come across one of these videos.
Do not rely on too many indicators
We have only talked about Moving Average indicator in this guide. But there is a ton of more different types of trading indicators. RSI, Stochastic, Bollinger Bands, MACD, ATR, PSAR, Ichimoku .. the list goes on.
Learn few of them, add them to your chart, try them your self, tweak the settings a little bit, take the ones you like, discard the ones you don’t. Keep doing this until you find one or two indicators you like. What’s important here is keeping your chart as clean as possible.
If you don’t want to learn all the indicators or spend time finding the right ones, we recommend you to just stick with moving averages. Most of the above indicators are based on moving average anyway.
Binaries have a YES or NO (Hight or Low/ PUT or Call) outcome. If your prediction is correct brokers will give you a percentage ( around 65% to 85% ) of your stake.
If you are wrong, You will lose 100% of the stake (money you bet).
“Will the USD/JPY go up in the next hour?” Two outcomes.
- Yes it will go up
- No, it won’t
You are placing your bet on that. The brokers will keep all the money if you lose, and only give you a percentage if you win. So the brokers have the edge in here. If you don’t have any trading strategies, you are playing a 50/50 probability game here. Since the brokers have the edge, you are bound to lose in the long run. That is basic mathematics.
So the first step is to trade using a demo account and build a solid trading strategy. As traders, you have to find places where you believe the odds are in your favor. (more than 50/50)
Do not stake more than 5% (2% is recommended) of your total investment per trade. We’ve been there. It is tempting to invest $1000 and get $700 profit in one single trade. But that is just too risky. A couple of continues losses and you’ve wiped your account. 🙁
This is the biggest reason why most of the traders lose money. Most of trading strategies traders come up with aren’t that bad. They perform really well in demo trading. But they don’t perform well in real trading.
Trading psychology and risk management go hand in hand. Risking appropriate amounts is the first step for maintaining a good trading psychology.
The second and the most important step is to keep your emotions under control.
These are some examples of bad trading psychology.
- You win two-three trades continuously – you increase the size of the investment for more profit (greed) – ends up all losing all the winnings
- You lose a trade – you increase the investment to cover your loses (fear) – ends up losing more
- Taking impulsive trades (when the market moves very fast) to make some quick profit
- Overtrading – even after achieving the daily target (profit/loss)
You have to understand the loses are a part of trading. Even the best traders in the world have had bad days.
You have to be emotionless when it comes to losing. The best way to achieve that is to start with very less amount of investment you don’t mind losing. Once you practice this, you can risk larger amounts without emotions clouding your trading decisions.
If you found yourself trading impulsively, just walk away from the screen and do something else.
So, that’s all for this guide. We hope you found it useful. Contact us or comment below, if you have any questions. Happy Trading.
GENERAL RISK WARNING: THE FINANCIAL PRODUCTS OFFERED BY THE COMPANY CARRY A HIGH LEVEL OF RISK AND CAN RESULT IN THE LOSS OF ALL YOUR FUNDS. YOU SHOULD NEVER INVEST MONEY THAT YOU CANNOT AFFORD TO LOSE