Probably the simplest of all, this strategy is one most adopted by novice traders as well as
experienced (and famous) traders such as George Soros. Trend strategy involves the analysis of trend lines drawn on candlestick charts, with traders looking to interpret market signals and take advantage of
trending prices, ideally entering when the trend is beginning to establish itself and exiting their positions when they feel a trend reversal is set to occur.
An ascending line suggests a call option; a descending line a put option. The ‘No Touch’ option is recommended in instances when there is a flat trend line accompanied by a prediction that the asset price will climb
But despite its simplicity this can be a very effective strategy if practiced with care – in particular by
verifying the relevant trend line against longer time frame charts, and monitoring and exiting before a trend reversal.
The reversal strategy is a variation of the trend strategy, based on the understanding that all trends will eventually change direction. Predicting exactly when this will happen is of course not easy, but there are numerous technical indicators, such as the Relative Strength Index (RSI) which can be used with
candlestick charts to help traders make good decisions.
The straddle is a more sophisticated strategy in which risk is reduced by the placing of both put and call options on a particular asset with the same price and expiration date. The put option is triggered as the asset price approaches the top of its recent
trading range; the call option as it approaches the bottom. If
neither trigger price is hit before the specified expiry time, then
of course no trade is placed. For this reason, although relatively safe, the straddle may be less profitable in times of low market
We all know that when Pinocchio lied, his nose grew. So what are the parallels with this fairy tale character and binary options trading? Simply put (no pun intended), candlesticks can, and sometimes do, lie.
A Pinocchio candlestick is characterized by a short body with a long shadow/wick, otherwise known as a Pin bar. With a
Pinocchio candlestick the shadow extends when prices move in one direction and then subsequently retraces. A long wick
indicates the asset price is going in one direction and that it will likely drastically reverse in the near future.
Traders use a Pinocchio strategy when they anticipate the candlestick is sending a false signal and that an asset will actually rise or fall dramatically in the opposite direction. In these circumstances a trader places a Call when the shadow is pointing up and the asset value is expected to go up, and a Put when the shadow is pointing down and the value is expected to fall.
Utilizing this strategy can be tricky and is better suited to more experienced traders. If you are a beginner trader, consider practicing this strategy on a demo account prior to trading on your live account.
Although often confused with the straddle, hedging is a very
different strategy which is often used by large funds and
institutional traders to manage risk in times of high volatility, such as often occur around the time of significant economic news releases.
Typically, the trader will place both put and call options in
advance of the news release, and allow time to place a second trade once the direction of the market’s movement becomes clear.
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