Lesson BO114: Binary Options Trading Strategy
Sam teaches what a basic trading strategy should include. A basic trading strategy is given as an example.

Welcome to Binary Options 114, Your First Trading Strategy. A basic trading strategy should include clear signals for entry, clear signals to place calls or puts. A basic trading strategy should include at least two signals.

So a bullish pin bar is not enough to place a call, a bearish pin bar is not enough to place a put. But perhaps a bullish pin bar where the confirmation would be enough. We should always have a confirmation before we place a trade.

A binary options trading strategy will need to win at least 60% of trades. Depending on the payout of the binary options you’re trading, this 60% may differ slightly. If you watch Binary Options 104, Break-Even Ratio, you’ll be able to determine what your break even percentage is and what percentage of winning trades your strategy needs to make to enable you to profit from binary options.

In this video, I will give a very basic trading strategy. This is the last of the Binary Options 100 training series. In the two following series, Binary Options 200 and Binary Options 300, I will cover trading indicators and another trading tools which can be used as part of a more complex and perhaps more profitable trading strategy.

Before I demonstrate the trading strategy in this video, it’s important that you understand moving averages, as I’ll be using moving averages in my example strategy. I think the majority know how an average is calculated. We have a series of numbers. The two most common ways to calculate an average are, one, to select the middle or center number; or two, to add the numbers together and then divide by the amount of numbers.

With moving averages, we have a moving average period or length. So if our moving average period or length was 5, we would take the last 5 numbers– 12, 10, 8, 6, and 5– add them together, divide by 5, and that would give us our moving average. If we had a moving average of 3– 12, 10, 8, the last 3 numbers– add them together, divide by 3, gives us 10. If we had a moving average of 2, we would take the last 2 numbers– 12 and 10– add them together, divide by 2. And that would give us our moving average.

At the close of each candle on a chart, a moving average can be calculated and plotted on our chart. And once we have a number of plotted moving averages, our moving average would look something like this.

So before I demonstrate this basic trading strategy, please remember, this is an example. But you may find it’s profitable on certain timeframes or certain binary options. So it could be used as part of a larger trading portfolio or a number of trading strategies. Or this trading strategy I’m going to demonstrate could be part of a more complex trading strategy. And please remember that no trading strategy will profit or win all of the time.

This is a 30-minute chart of the pound against the dollar. I have two moving averages on my screen– a moving average of 50, which is the green moving average, and can be referred to as the faster moving average. And then I have a slower moving average at 75, which is this red moving average.

When the faster, or green, moving average is above the red moving average, we are looking to place calls. When the red moving average is above the green, so when these moving averages cross like so, and the red is above the green, we’re looking to place puts.

The second part of this strategy is we’re going to place calls or puts when there are pin bars or engulfing candles that follow the bias of the moving averages. So when the green moving average is above the red, we’re looking for bullish pin bars or bullish engulfing candles. When the red moving average is above the green and we’re looking to place puts, we’re looking for bearish engulfing candles or bearish pin bars.

The third step to this strategy is these pin bars and engulfing candles have to either be very close to our moving averages or in between the moving averages so there’s space in between both moving averages. So once again, this is the pound against the dollar. It’s a 30-minute chart. And we’re just going to look at recent price action.

So our green moving average is above the red. We’re looking to place calls. And we’re looking for engulfing candles and pin bars that are very close to these moving averages or in between these moving averages. So we have a pin bar here, a bullish pin bar, and a bullish engulfing candle. But we wouldn’t open positions there, because they’re so far away from our moving averages.

If we go forward, this is the signal we are looking for. We have a bullish engulfing candle. It’s literally on this first moving average. And our moving averages are giving a bullish signal. So we could place a call there. And you’ll see a price go strongly on the upside. Even though this is a 30-minute chart, there’s no reason we couldn’t place a four-hourly binary option or end-of-day binary option.

Our next signal is given here. Our moving averages cross. Our red, or slower moving average, is now above the faster moving average. So we’re looking to place puts. And in between these moving averages, we have a pin bar. That’s a signal to place a put.

If for whatever reason we miss that signal, we have an engulfing candle, which makes an evening star with those three candles. And then there’s another signal here of a bearish engulfing. So a number of signals there to place puts. And all of them would have been profitable.

Our next signal is here. We have a bearish pin bar there. Price does go up for the next 30 minutes and then goes back down. So if we were to trade a 30-minute binary option, we would have made a loss there.

But if we’re looking to trade longer term, we would have made a profit, as price does go on the downside. There’s also another signal here, a bearish pin bar, and another one here, a bearish engulfing. And price is bearish after both of these signals.

Our next signal is here. We have a bearish pin bar, and price falls for the next 30 minutes. And then our next signal is here– a pin bar. The red moving average is still above the green. Price falls on the downside.

If we were trading 30-minute binary options, we could have made another loss there. But then we have this bearish engulfing of these moving averages. And that would have been a win.

Let’s look at an hourly chart but keep the same trading strategy. Straightaway, I can see three winning trades. The red moving average is above the green, so we’re looking to place puts. We have a bearish pin bar that’s in between the two moving averages. We could’ve placed a put there and made a profit.

We have a signal here at bearish engulfing. We could have placed a put there and made a profit. And then there’s a pin bar here, a bearish pin bar, very close to the moving averages. Our moving averages agree. The red is above the green, so we could have placed a put there. Once again, price depreciates.

There’s also a bullish signal right here. We have an engulfing candle or morning star. The green moving average is above the red, so we’re looking to place calls. We’re in between the two moving averages. And price goes on the upside. We also have a pin bar here, a bullish pin bar. And once again, price goes on the upside.

Thank you for watching this Binary Options 100 trading series. As always, please check out our website and our recommended brokers. And we will soon be publishing our Binary Options 200 and 300 training series.