Trading binary options requires an increased sense of timing as many times the trading opportunity ends within a fixed time frame. So not only the trader has to be right on the direction but it has to be right on time as well!
On the other side, the payout of binary options is relatively high considering that with a small movement in favor of the trader and within a short period of time the trader can be rewarded with up to 100% return on investment. So with that being said, a binary options strategy has to be specific and should result in capturing the market when it’s most likely to make the move in the preferred direction.
A strategy is like a cooking recipe. The better the ingredients are, the better the results will be.
Binary Options Strategy Components
Ingredient №1: Kaufman Adaptive Moving Average (KAMA)
This moving average is one of the best as it uses specific calculations to adapt to market price and gives less false signals than the commonly used simple moving averages (SMAs) or exponential moving averages (EMAs).
Here we are going to use it with default setting as found on the IQ Option platform (see the below image).
Ingredient №2: ATR Trailing Stops
When it comes to using the best of the best, ATR Trailing Stops never fails to impress. It’s probably the best indicator for trailing stop losses as the name implies. Moreover, it is one of the best indicators to signal a change in trend timely.
In this strategy we are utilizing the ATR Trailing Stops with its default settings, as shown in the screenshot below.
Ingredient №3: QStick
We are using QStick only on the trend reversal part of the strategy. The reason is that trading a counter trend reversal is inherently more risky and requires better timing of entry than just trading an established trend.
Although it resembles an oscillator, QStick can be used as a trend indicator. By adding it to our mix, we can increase the probabilities that a countertrend signal is valid. The settings used with QStick are the default ones and shown in the image below.
Duration & Candlestick Timeframe
This binary options strategy works on any time frame. In this case, we are going to show the setting for the turbo options which is the fastest category of binary options. We are focusing on 60s or 1 minute turbo options.
The candlestick timeframes are approximately ¼ of the option expiration time which gives us the 15 seconds candlestick duration.
We are going to be using the KAMA and ATR Trailing Stops indicators only for buying and selling with the trend. On the trend reversals we are going to be adding the QStick to the strategy as well.
The Trend Strategy
- Buying at the start of the new bullish trend is allowed only if both price and the ATR Trailing Stops indicator are above the KAMA moving average.
- Then we must wait for the first bullish candlestick to close above the ATR Trailing Stops indicator.
- We can buy or enter a long trade immediately on the next candlestick open.
- Selling at the start of the new bearish trend is allowed only if both price and the ATR Trailing Stops indicator are below the KAMA moving average.
- Then we must wait for the first bearish candlestick to close below the ATR Trailing Stops indicator.
- We can sell or enter a short trade immediately on the next candlestick open.
Trading Trend Reversals
In order to trade trend reversals, we need to use another indicator, the QStick. QStick filters out bad signals and improves signal consistency and success.
Buying a bullish correction/reversal on a bearish trend required three steps:
- First the bearish trend must be clearly visible with the price going far below the KAMA moving average.
- Then we need to see a correction and the price closing above the ATR Trailing Stops.
- The last thing we need to check is the QStick. If it turns green, we can open a long trade or buy the asset on the next candlestick open.
Similarly, selling a bearish correction/reversal on a bullish trend required three steps.
- First the bullish trend must be clearly visible with the price going far above the KAMA moving average.
- Then we need to see a correction and the price closing below the ATR Trailing Stops.
- The last thing we need to check is the QStick. If it turns red, then we can open a short trade or sell the asset on the next candlestick open.
Chart Setup — Tips for Strategy Improvement
It’s always critical that the trader sets up his or her charts in a way that can enable them to observe as many markets as possible at the same time. This is important as to not miss an opportunity.
Starting with four charts is ideal for beginners, while gradually the trader can use up to 9 charts on a 3 by 3 set up. In addition, saving the trading indicators as a template is critical, so the strategy can be loaded fast in as many charts as necessary.
Moreover, it’s important to always filter option payouts from highest to lowest, so the trader can quickly focus on the best deals. The higher the reward, the higher the profit. Sometimes the payout can reach 99% or even 100% which makes risk reward more favorable for the trader.
So there you have it, a binary options strategy for picking trends at the start and reversals at the end of the trend. Timing, discipline and correct execution are critical for the success of this strategy.
While there is no 100% strategy, bending the odds more in the favor of the trader is the case of this strategy. Meanwhile, the markets do not always offer good opportunities, so it’s critical that the trader does not focus only on one market and also avoids trading in hours where the trading volume is very low and the markets become choppy or trade sideways.