smart & simple trading TRADING MANUAL THE ULTIMATE GUIDE FOR BEGINNERS
TABLE OF CONTENTS Get to know Master Option Get to know Binary Options The Basics of Binary Options The Components of Binary Options The Benefits of Binary Options How to Trade Binary Options? Our Financial Instruments High / Low Options One Touch Options Boundary Short-term Options Analysis Techniques Technical analysis Trend following: Momentum Mean reversion Bollinger Bands Relative Strength and Stochastic indicators. Pattern Recognition Support and Resistance Fundamental analysis Company Information: Industry News Natural events Fear factor Market conditions Economic performance Economic indicators 5 6 7 8 9 11 13 13 14 14 16 17 18 18 18 19 19 19 19 20 20 21 22 22 22 22 23
Trading Strategies Reversal Trend Reversal Straddle Knock-on effect Tips for your success Risk Management Analyze and research Learn from your mistakes Follow trends Risk and reward Familiarity Limiting your trades Choosing the right Broker 24 24 25 25 26 26 26 26 26 27 27 27
DEAR TRADER Welcome to the exciting and highly lucrative world of binary options trading! As we re totally committed to our loyal traders, we are happy to provide you with this thorough & comprehensive E-book, designed to improve the knowledge and the trading techniques of traders of all skill levels. Although binary options trading is by far the easiest form of trading, and one of the most lucrative ones as well, years of experience in this field have definitely established our perception, that learning some basic strategies and analysis techniques will surely improve our trader s overall results, and naturally his/hers generated profits. In this E-book we will introduce you to the basic elements of binary options trading and their inherent advantages. Then we will discuss the different financial instruments available through MasterOption s trading platform, as well as some trading techniques and analysis, which have been proven to increase our traders return on investment.we will also address some of our site s main advantages, including our platform s easiness of use, our quick depositing & withdrawal procedures and many other main advantages that have turned us to one of today s leading binary options brokers. smart & simple trading
GET TO KNOW When it comes to investing your hardearned money, we believe in full transparence, since we understand the importance of trust as a preliminary condition to any financial investment: Master Option has taken upon itself to provide its traders with the fullest and most accurate information regarding its site and operations, in order to establish a relationship built on trust with our respected traders. Master Option s professional trading platform is based on the latest, most innovative technology available, providing its clients with a second-to-none trading experience: The combination of our user-friendly, technologically-superior trading platform and the high payouts we provide on our financial instruments, ensures trading with Master Option has the best value-formoney you can find. We apply advanced security measures to our platform, ensuring a 100% safe trading to all of our clients. We also keep a strict privacy policy and maintain a Know-Your- Customer policy, aimed to prevent any fraudulent activity. As we like to provide our traders with the highest degree of freedom of choice, we enable the use of a wide range of financial instruments, including short term, High / Low, one touch and boundary. We also provide an extensive list of trading assets, available from various global markets and different sectors. Last but not least, let us address our customer service: we don t like to speak on our behalf, but in this case we have to say, that the Master Option team is made of devoted and excelled professionals, personally hand-picked by us, as we aim to ensure our traders get the highest level of service one could get. Our highly-skilled account managers and attentive customer support representatives are available for you with any question whatsoever throughout all trading hours via various communication channels: To contact us, you can simply leave your details on our contact us page, e-mail us at: support@masteroption.com, start an on-line chat with one of our representatives or call us: CA: +1 647 846 1986 AU: +61 286 078 432 UK: +44 203 608 5172 5 GET TO KNOW MASTER OPTION
GET TO KNOW BINARY OPTION THE BASICS OF BINARY OPTIONS Here s a short introduction into the basics of binary options: Commonly referred to as Digital Options, Binary options are essentially financial instruments, which enable traders of all skill levels to trade options on the value of a variety of global assets, quickly & easily. The term Binary refers to the fact that you generally have two types of options to choose from: Either you choose a High option, meaning you believe the price of your chosen asset will rise by the time the option expires, or you choose a Low option, in case you believe it will rather go down. Other types of financial instruments available through Master Option s trading platform are boundary, in which you need to decide whether the asset will stay or not within the range of two prices, and one touch, in which the asset must touch a certain target price prior to the option s expiration time. 6 GET TO KNOW BINARY OPTION
BINARY OPTIONS ALSO HAVE TWO POSSIBLE OUTCOMES : Either your option expires in the money, meaning your prediction on the asset s value was correct, or it ended up out of the money, which means the asset s value has moved in the opposite direction than you ve predicted. One of the main inherent advantages of binary options is their simplicity. If your prediction is Correct you will receive a return on your investment of up to 90%, while if you were wrong, Master Option will still grant you with a certain percentage of your initial investment (usually about 15%), thus enabling you to keep on trading and hopefully re-gaining your investment as you improve your trading skills. Binary Options allow you to trade on a wide range of assets, available from various sectors & categories and from across all global markets. That s one of the main reasons binary options are so popular: because they re convenient! You can trade virtually 24 hours a day, whenever you want. Also, you don t need to worry about when is the right time to sell your option like in traditional trading: After you ve executed your option, all you have to do is sit back & wait for it to expire. Binary options are also highly suitable for short-term trading, due to their contract s short duration. The fact that they have no set prices is also a huge advantage, as it enables the trader to control the amount of money he wants to invest, thus limiting his risk. 7 GET TO KNOW BINARY OPTION
THE COMPONENTS OF BINARY OPTION Now let s delve a little deeper into the components of binary options : Binary Options are based on four main components, all of them subject to your choice: Your Asset Each trade you make is based on the asset you select. Master Option s assets include stocks, indices, commodities and currency pairs, available from various sectors and geographical locations, thus enabling you to expand your trading opportunities and maximize your financial revenues. Your Contract Each trade you make has an expiration time set forth upon execution of the option. Unlike many types of traditional trading, which required investments for long durations of time before a reasonable return could be achieved, binary options expire in a matter of weeks, days, hours or even minutes. Master Option actually enables you to trade on options expiring within as little as 60 seconds or two minutes. Your prediction When executing a binary option, you essentially need to determine in which direction the price of your chosen asset will move prior to the expiry time. The simplest form of binary options is the High / Low options, in which your forecast is based on whether the asset s price upon expiration will be higher or lower than its original strike price. If you believe the asset s value will go up place a High option, and if you think it will rather go down by the expiry time choose Low. Another type of options available through Master Option s platform is the One Touch option, in which the trader needs to predict whether the asset s price will touch a certain target price upon expiration or not. We also enable you to trade Boundary options, in which the prediction is on whether or not the asset s value will remain within the boundaries of two target prices or not. Your invested amount Upon executing each trade, you need to choose how much money you wish to invest in the particular trade. With Master Option, minimum trading amount is merely $25, so it s really just up to you to manage your finance and limit your risk. We do not obligate or bind you to anything else. 8 GET TO KNOW BINARY OPTION
THE BENEFITS OF BINARY OPTIONS Binary Options trading holds a wide range of advantages to traders of all skill levels: Simplicity this is probably one of the main attraction points, which makes binary option s trading so appealing to global traders, with their popularity growing exponentially ever since 2009. The fact is, trading binary options is much simpler compared to all other types of trading, including Forex and traditional trading. With binary options, all you need to do is simply choose between two directions of movement for your asset, or two eventualities concerning the asset s price (when trading one touch or boundary options). Either way, all you have to do is choose between the two alternatives offered to you. Profit from all market eventualities Unlike traditional trading, where investors could usually only gain profits when the market was bullish and prices were rising, binary options traders can profit from whichever market eventuality, and still make money even when markets are bearish and prices are falling. All that matters is if the trader s prediction was correct or not. So if prices are falling and the trader places a Low option on his asset, he can achieve the same generated payout as he would from placing a High option on an asset that was going up. In order to accurately recognize market s trends and make correct predictions, traders can apply several analysis techniques, which we ll specify in this E-book shortly. You can also learn more about trading strategies via our site s Education Center. To help our traders stay up-to-date with current market information and financial news, Master Option provides a Daily Financial Review, as well as a Professional Signals Service, provided free-of-charge to our loyal customers. High Returns Much like their simplicity, this too is a main attraction point of binary options: they allow high return rates of up to 90%, much higher than traditional trading or Forex. And you get to collect your winnings much quicker than you would in other types of trading. So with binary option s trading a trader can achieve substantial and highly lucrative results in no time. Limited Risk The fact that trading at Master Option starts at merely $25, and that you are not engaged in a binding contract, helps you limit and control the risk factor and manage your finance in an optimum enough funds left to keep on trading and 9 GET TO KNOW BINARY OPTION
re-gain your investment even if your initial trade s prediction was incorrect and you lost some of your overall investment. Availability Master Option s advanced trading platform enable you to trade on dozens of global assets, including stock, indices, commodities and currency pairs. We provide you with the opportunity to access assets from the world s main markets, alongside assets from emerging markets, thus allowing you with access to an endless range of financial opportunities. The fact that you can access various global markets also ensures that there is always an asset available for you to trade on, almost 24/7. So you are really free to choose when to trade. Also, as our trading platform is web-based, you can access your account at all times and from anywhere. The Choice is ALL YOURS... 10 GET TO KNOW BINARY OPTION
HOW TO TRADE BINARY OPTIONS? 1 In order to start trading, you first need to open your trading account. Opening your account with Master Option is a quick and easy process: simply click on open account and fill-in your personal details and account information, including your user name & password, which will enable you to safely approach your account. Master Option offers 4 main account types, always providing you with the best payouts, bonuses & trading tools at each level of investment, making sure you get the best value for money. 2 Having opened your trading account you will need to deposit funds into your account, so you can start trading. Master Option enables the use of a wide range of deposit methods available to you choice. You can deposit money via credit card, wire transfer, western Union, Neteller, MoneyGram, Webmoney, QiWi and many other payment methods. To view our full list of available methods visit our deposit page. Additional deposits can be made via the banking section of the platform after you ve loggedin. 3 Choose a financial instrument: the first step of actually conducting a trade involves choosing a financial instrument for this particular trade. You can choose between High/Low, one Touch, Boundary and Short term options. (Please note that not all instruments are available at all times, depending on the asset s market hours). 11 GET TO KNOW MASTER OPTION
4 Choose an asset: after choosing a financial instrument, choose an underlying asset from our available list of assets for that particular instrument. There are four main categories by which assets are divided: stocks, - such as Microsoft, Apple, HSBC, Google and many others; indices, - like the Dow Jones, S&P 500, NASDAQ, Nikkei 225 and others; commodities, - like oil, gold, silver and corn; and currency pairs like the EUR/USD, USD/ JPY,EUR/GBP and many others. Master Option also provides you with the ability to trade on some more exotic currency pairs, like the USD/Turkish Lira, USD/South Africa Rand and others. You will be able to see each asset s current price upon executing the option, as well as your potential payout if the option expires as you ve predicted. 5 Predict the Price movement: having chosen your preferred asset to place your trade on, you need to choose towards which direction you think its value will move by the expiration time of the option. If you think the asset s value will increase by the expiration choose High, or alternatively, choose Low if you believe its value will decrease by the expiration. If you trade with one touch options you need to choose whether the asset s price will touch or not touch the specified target price. When trading Boundary options you predict whether the asset s price will stay within the range of the two target prices or not. 6 Wait for the Expiration: If your prediction was correct you will be in the money and will gain the generated payout as set forth when you executed the option. If your prediction was incorrect, however, you will then be out of the money. Unlike all or nothing platforms, Master Option will still grant you with 15% refund of your trading amount in this case, allowing you to keep on trading and re-gaining your investment. 12 GET TO KNOW BINARY OPTION
OUR FINANCIAL INSTRUMENTS As we wish to provide our traders with the widest range possible of financial opportunities, Master Option offers four types of binary options: High / Low Options Also commonly known as digital options, these are the simplest most popular options. As we ve already explained above, in these options the trader simply predicts whether the asset s price will rise or fall prior to the option s expiration time. Here s a short example of how it works: Say you have chosen to trade $100 on an hourly Apple s option, currently being traded at $532.50. The payout rate for this particular option is 81%. At the end of the hour, when the option expires, the price stands lower at $531.60. If you had placed a Low option you would be in the money and receive a return of $181 (your original stake of $100 plus an 81% payout). If you had placed a High option, you would be out of the money and receive about 15% of your stake in return. As we ve already established, the magnitude of the movement itself does not matter here as it does in traditional options trading: all a trader has to do in order to be successful in his trade and obtain the payout, is to accurately predict the direction towards-which the asset s value has moved. Even a fraction of change is enough. One Touch Options One Touch Binary Options allow you to place a trade based on your notion regarding whether or not a certain underlying asset will reach a certain target price. These options are available for commodities and currency pairs only. Unlike regular binary options, with one touch options you have to do more than simply predict the asset s value direction of change, you need to decide whether or not it will reach a certain predetermined price. Actually, the direction of change is so to speak determined & offered for you by the platform if you think the asset will reach a certain price prior to the expiry time than you choose Touch, and if not simply choose not touch. 13 GET TO KNOW BINARY OPTION
For example: say Oil is currently traded at $102 and the target price of the option is set on $102.5. If the price of oil goes up and reaches $102.5 at any time between the execution of the option and its expiry time, the trader will be in the money and receive the payout. It doesn t matter what happens to the price of oil after that: as long as it touched the target price once the trader is in the money. If the price doesn t reach the target price, the trader will be out of the money and will get a certain refund back from the broker. Boundary Trading with Boundary options requires you to make a prediction on whether or not your chosen asset will remain within a price range of two target prices a lower and an upper one. Much like One touch options, boundary options are most commonly used when trading on commodities or currency pairs (Forex). Combined together, the upper & lower prices form a boundary, and you need to decide, depending on your knowledge over the asset, whether its price will stay in those limits or not until the option expires. If you believe the asset will stay within those two limits you should click In, whereas if you believe it will actually exceed those limits, click Out. When the option reaches its expiration time you will know whether or not your prediction over your asset s value was correct, depending on the market price of the asset at the expiry time. Your payout is specified up-front, upon execution of the option. Short-term Options Short term options are one of the main perks of trading binary options, quickly becoming the most popular financial instrument used by global traders. Trading with short term options enables you to know your option s outcome quickly and move on to your next trade. This way you are able to assess your current account balance and take calculated risks while managing your funds properly. Also, being afforded with the opportunity to trade such short time-frames gives you a chance to use your financial knowledge of what s going on in global markets right now, and if you happen to detect a strong trend put it to use as part of your overall trading strategy. Master Option provides the following short term expiration times: 60 seconds, 2 minutes and 5 minutes. These expiration times are valid for High / Low options only, thus making it simple for you to trade, as these types of options only require you to make a prediction over the asset s general direction up or down. 14 GET TO KNOW BINARY OPTION
You do not need to assess by how much your asset s value will change before the expiration time. As long as your asset moved in the right direction (right for you, that is, meaning the direction in which you have predicted it will when executing the option) your option s outcome will be in the money & you will receive your generated profits. Short term options are therefore a quick & easy way of achieving significant profits, which may come-in handy when trading on the value of commodities or currency pairs, which tend to fluctuate in value quite often. Trading short-term options is similar to trading regular High / Low options: Choose which short term expiration you prefer: either 60 seconds, 2 minutes or 5 minutes. Then choose an asset from the available assets under that expiration category Click whether you think its value will be Higher or lower upon expiration Enter your trading amount Click execute You can see the asset s current market price and will be provided with the return rates of your option for both outcomes In or Out of the money. 15 GET TO KNOW BINARY OPTION
ANALYSIS TECHNIQUES here are two types of analysis traders can employ in order to improve the chances of accumulating consistent profits from binary options trading: Technical analysis and Fundamental analysis. Fundamental analysis looks at how outside influences can affect assets prices, while Technical analysis focuses on how an asset s price has moved in the past and how that may determine future movements. Both types of analysis are essential tools for traders. Fundamental analysis assumes that the market is rational and that an asset s price will eventually reflect the true value of the investment. Technical analysis, on the other hand, assumes that the marketplace will repeat past trends and that a security s price will eventually move in the same way other investment prices have moved. 16 ANALYSIS TECHNIQUES
TECHNICAL ANALYSIS Introduction to Technical analysis: The basic premise behind a Technical analysis is that an asset s future value may be predicted by recognizing market trends through statistics. By learning about an asset s past patterns of movements & matching it to economic events related to it, one may be able to successfully predict an asset s future behavior. To conduct a technical analysis, you will need to check your asset s historical prices and volume data, and then combine that information with market events that have affected the asset s price. This will help you gain a better understanding of your asset s usual response to such events. Once you ve establish that, it s easier to speculate how the asset will behave and what will happen to its value under similar circumstances. When conducting a technical analysis, it s advisable to look into the asset s price & volume data over a few months period and match the charts showing you the asset s historical prices with market information (available through various financial & economical newspapers and websites). This way you can detect trends occurring in response to economic events like the U.S monthly employment data or other macro data being released regularly. It may sound more complicated than it actually is, but nowadays, with information being so easily approachable & accessible through the web, obtaining all the necessary information required to conduct a technical analysis is really quick & simple, and can be done even by new traders with no previous financial knowledge. Technical analysis can be particularly helpful in assisting an investor with entering, exiting and managing the risk of positions. 17 ANALYSIS TECHNIQUES
There are a number of analytical tools you can apply when conducting a Technical analysis: Trend following: Trend following is an investment strategy based on the technical analysis of market prices, rather than on the fundamental strengths of the companies. It is done by analyzing historical data in order to establish whether a sustained movement in a particular direction is occurring. This normally involves looking at different periods, such as two day and seven day moving averages. If the moving average for the shorter period crosses significantly above or below that for the longer period, then an upward or downward trend has developed. Momentum Tracking momentum is sometimes known as Moving Average Convergence Divergence (MACD) and determines whether an asset s momentum is rising or falling. It is used to track the daily changes in short-term and long-term averages. If the short-term averages are larger, momentum is increasing, while larger long-term averages suggest a decreasing momentum. Slowing momentum indicates the rate of change will decrease, and may eventually reverse. Mean reversion Mean reversion is based on the assumption that both a stock s high and low prices are temporary and that a stock s price will tend to move to the average price over time. This analysis technique involves identifying an asset s mean and then determining if the asset s price is settling back to that point. It is rather like testing a rubber band to see 18 ANALYSIS TECHNIQUES
There are few Technical Indicators applied to measuring mean reversion: Bollinger Bands Bollinger Bands are used by analysts to measure mean reversion, by employing various statistical factors. The purpose of Bollinger Bands is to provide a relative definition of high and low in order to generate a set of bands to contain the price action. Bollinger bands allow any trader to instantly view price on a chart relative to its volatility mean over a period of time. Volatility is the rate at which the price of a currency pair moves up and down in the market. When high volatility can be seen, the upper and lower Bollinger bands widen and when the price fluctuations decrease, the bands contract. The price usually bounces off the range whenever it touches the upper or lower band. Relative Strength and Stochastic indicators. This is another technical indicator which measures how fast a market has moved in the short term, relative to movements over a longer period. Stochastic indicators, in particular, are based on the principal that in an up trending market, stocks tend to close near their highs and in a downward market, stocks tend to close near their lows. Both These indicators create an index that is used by traders to determine if a market is overbought or oversold. Pattern Recognition In this type of analysis, the trader is looking at specific patterns within the price action, to help him determine whether any recognizable patterns reveal a predisposition for him to forecast a specific price move. Support and Resistance Support and resistance are among the most widely known and widely used Forex trading concepts and strategies. These are the levels in the markets, which price has not been able to break outside of. Support levels are the areas which price cannot seem to break below. If a break does happen, it is only temporary and the price soon returns above the level. Resistance levels are the areas which prevent the price from rising further. These levels act like a ceiling and appear to force price back down when it tries to break above the level. It is essential to bear in mind that support and resistance levels are not exact numbers, but offer traders a clear indication based on past performance, that when price reaches either a support or resistance level it is likely to bounce back. 19 ANALYSIS TECHNIQUES
FUNDAMENTAL ANALYSIS Introduction to Fundamental analysis: Basically, a fundamental analysis involves conducting a detailed review of all the financial information regarding the company or firm. This includes the company s market share, quarterly earnings reports and financial statements, as well as management structure and other relevant data. If the analysis is performed on assets such as currency pairs or futures indices, it will then focus on relevant macro data like interest or unemployment rates in the related countries. Performing a fundamental analysis means looking into both current & historical data of the asset: Understanding how the asset had previously reacted to certain economical or financial events will help you better understand it, and by that, better predict how it will likely behave under similar circumstances in the future. You can either look into the asset s data and then compare it to wider market events (the bottom up approach) or start by first learning about general market information and then move on to researching your asset s particular relevant information (the top down approach). General factors you should look into when conducting a fundamental analysis include: the company s financial statements; its place in the market; its competitors and other corporate information. You should also examine the company s assets, revenues, expenses and all other aspects related to its financial stability. Market wise, try to obtain a good understanding of the industry to which the asset belongs (retail, banking, technology etc...) as well as the general market sentiments and overall economic conditions.
FUNDAMENTAL ANALYSIS CONSIDERATIONS: When conducting Fundamental analysis there are a few things you should take into consideration: Company Information: When trading binary options on a certain company s share price, obtaining full information about the company is absolutely vital. Getting this information may be done via reading news items and press releases and taking account of analysts views. When learning about the company s worth, take into account the following factors from the company s published accounts: Earnings per share (EPS): that provides a measure of the value of each share Price to earnings (P/E) to determine if a share is under- or over-valued Projected earnings growth (PEG) to compare the share price to annual growth Book value as total assets less total liabilities Price to book (P/B) compares the share price to the company s asset value Price to sales (P/S) to show the share price in relation to annual sales Dividend yield as a percentage of the company s share price Return on equity (ROE) to determine the effectiveness of using the money invested. Note that any news or information about a company may have far-reaching effects. For example, the announcement of a new product may increase the company s share price, while at the same time forcing down the value of its rivals. A disappointing quarterly earnings report, on the other hand, may immediately send the company s share down. Industry News The performance of the overall industry has a direct affect over the value of all companies that comprise it. A successful company s share price may be dragged down by an industry that is in general decline. Conversely, a struggling company may experience an uplift if the wider industry begins to improve. Although a company may perform better or worse than its industry, it will always be associated with it and this will be reflected in the company s share price. It is advisable to watch for industries that are on the upswing and to trade companies that are part of them accordingly. For example, one would generally expect the price of shares in renewable energy companies to be increasing as the market develops and products become more widely available. Natural events As all assets are affected by supply and 21 ANALYSIS TECHNIQUES
demand, Assets such as commodities will obviously be influenced by natural disasters and weather conditions. For example, a drought or severe storm that ruins corn crops on a wide scale will force its price to rise. Similarly, a hurricane that shuts down an oil field can cause the price to rise due to supply problems. Some of the effects of natural events are fairly easy to predict, but they can have far-reaching consequences. If the price of a commodity rises due to a shortage of supply, the share price of the company that supplies the commodity may increase. Conversely, a company that uses a lot of the commodity will suffer a fall in profits and its share price may drop. A country that is a major producer will benefit through exports and its currency may rise. Fear factor Markets are often driven by sentiment, with prices quickly rising and falling. Often, there s no real logical reason for the changes and they can be driven by fear. It s difficult to predict how markets will move in these situations, but often they establish an upward or downward trend that continues for some time. A successful binary options trader will follow the news in order to identify events that are likely to panic or calm the markets. Market conditions Bull markets are established when prices are rising, while bear markets, on the other hand, are formed when prices are falling. These markets can become established for long periods, often years, and help you determine the general direction of price movements. This is useful when trading an index but also provides guidance for individual company shares. Whether a company is successful or unsuccessful, it will be affected by prevailing market conditions. Markets can also become range bound, with prices moving within a narrow band even when the longer-term trend indicated a particular direction. They may also become volatile, with prices varying wildly. Studying events that influence the market will give a guide to overall movements. Economic performance In the short-term, it is acceptable for a country to run a large budget deficit. However, if the deficit continues for a number of years, it can become a problem. Countries often devalue their currencies to make exporting easier and to limit imports, thereby reducing or eradicating the deficit. When the currency floats freely, the value often goes down against other currencies that have stronger economies. The Euro zone itself poses a difficult challenge, because there are many countries with different performance levels but only one currency. Countries themselves often use interest rates as an economic weapon. A rising interest rate makes a currency more attractive and generally causes its 22 ANALYSIS TECHNIQUES
value to increase in relation to other currencies. However, different countries can change their rates in the same or opposite directions at the same time, so it s the difference between the rates that sets the currency pair values. Prices often move in the expectation of an interest rate change. Budget deficits and falling currencies obviously affect the prices that countries pay for the commodities they import. This can have an impact on other parts of the economy, with share prices particularly affected for those companies that import or export extensively. Economic indicators Various economic indicators are published that either analyze economic performance or predict future performance. These indicators have different timings in relation to the way the economy changes: Leading economic indicators are important in predicting price movements, because they change before the economy as a whole does. Stock market returns are one such indicator, because the markets, for example, generally rise before a recession ends lagged economic indicators follow on after the economy changes direction, such as the unemployment rate, which usually improves two or three quarters after the economy reenters growth Coincident economic indicators, such as GDP, tend to move in line with the overall economy 23 ANALYSIS TECHNIQUES
TRADING STRATEGIES Reversal Asset prices often follow a trend for a set period moving only in one direction. When the trends of price and volume move in the same direction, it is an indication of a healthy underlying market direction. However, when price trend is rising, but the trend is falling in volume, it warns of a potential price trend reversal. When a reversal is indicated, a trader may trade an option that is in the opposite direction to previous movements. He might, for example, trade a High option if the price has been falling and is now expected to rise, or a Low option if the price is due to fall after an increase. Trend Reversal A trend reversal may be indicated by a diamond pattern on a price chart and, although it may not be as common as other reversal patterns, it can be a useful indicator. This type of pattern comes in two forms: the diamond top and the diamond bottom with both types having the shape of a diamond lying on its side. A diamond top forms at an up trend s peak, occurring when the rise ends and the price remains flat for a while. This can result in a series of waves that become taller and then revert to a lower level. At this point, you should expect the price to break out to the downside. This is a signal to change the direction of your trades. A diamond bottom is the reverse effect, with the same reverse pattern but at the bottom of a downward trend. As the waves begin to flatten out, a change of direction is indicated and a breakout to the upside is due. Any 24 TRADING STRATEGIES
binary options Traders who have been finishing in the money with Low options should therefore change to High options in order to take advantage of the trend reversal. This strategy is based on the concept that if an asset suddenly moves in one direction, it is unlikely to remain at that peak but will move back towards its original position, if not all the way. So, an investor should trade an option, High or Low, depending on whether the price has risen or fallen suddenly, on the assumption that it will soon return and stabilize. Of course, no one knows when an asset has reached its peak. So close monitoring of the asset and researching why it peaked is vital to deduce the likelihood and timing of its return. Straddle Best applied in times of market volatility, prior to some main news related to a certain stock, or when analysts seem to have extensive predictions regarding it, the Straddle strategy is a well-known strategy throughout the global trading community. True to the saying the trend is your friend, the straddle strategy enables the trader to avoid having to choose between a High and a Low option, by actually placing both on a single asset: The idea here is to place a Low option when the asset s value is high, but you believe it will start dropping within the near future, and then, when it starts declining to place a High option on it, thinking it will actually rebound soon. Alternatively, it can off course be done in the opposite direction, by placing a High option on an asset who s trading at a fairly low price, and when the market begins to rise place a Low option on the asset. This way you enhance your chances of being successful in at least one trade, by getting an in the money result. The Straddle strategy may therefore become a trader s best friend when markets are fluctuating, or when a specific asset becomes highly volatile in value. Knock-on effect Also known as the market pull strategy, the knock on effect is a very common trading strategy amongst binary options traders from across all global markets. The strategy requires an understanding of both the financial markets and of binary options signals. The basic premise behind this strategy is that a movement of a certain asset s value is likely to have an effect over another asset, thus creating a knock-on effect. Suitable for all asset categories, the knockon effect strategy can prove to be highly valuable to binary options traders, helping them in determining which option to place over their chosen asset. For example, leading technological firms shares such as Microsoft, Apple, Google or Facebook tend to have a significant affect over the NASDAQ, which is a technologically-oriented index. So, a significant rise or fall in one of these companies shares is likely to have a similar effect over the value of the NASDAQ shortly after.
TIPS FOR YOUR SUCCESS Here are few main considerations we have gathered for you, which are advisable you apply as you trade binary options: Risk Management One of the most important considerations for any trader is how to manage risk. Although binary options offer low risk compared to other types of trading, the possibility of loss still exists. While there is no strategy that can fully avoid risk, there are few methods you can utilize to minimize you financial exposure when you enter the market. Analyze and research Following a hunch will generally end in failure and a trader should never simply guess when he makes a trade. The primary way to minimize risk is to undertake thorough asset analysis. Technical analysis will establish price patterns that indicate future movements; fundamental analysis will identify events that will cause prices to change. Being a successful trader is often about getting in quickly; watching the news and announcements will ensure you stay ahead of the market and understand how events are likely to affect prices. Learn from your mistakes It is important to remember that trading mistakes occur from time-to-time. The best thing you can do is simply accept each mistake as a lesson and as an opportunity to learn from your experience. Traders should build up a history of both successful strategies and those that have not worked, so that they can avoid repeating the same mistakes in the future. Gradually, over time, you will improve your trading skills and your overall success rate. Follow trends Trying to beat the market does not usually work. Traders should generally watch for trends and try to follow them by purchasing mainly High options in a bull market and Low options in a bear market. Traders should also remain alert to how the market is moving so that they can alter their tactics as soon as a reversal looks likely. Risk and reward Trading is a balance between risk and reward. A greater appetite for risk offers higher returns, along with the reduced probability of success. A safer trade will increase the chances of gaining, but will, in turn, pay less and take longer to accumulate significant profits. The best strategy is usually to go for a mix of trades. A trader should only opt for a 26 TIPS FOR YOUR SUCCESS
riskier trade if he has a firm reason to believe he is correct in his assumptions. He should opt for the safer option if he is not totally sure. Needless to say, if a trader entertains real doubts about a trade, he should avoid it altogether. Familiarity Risk can be minimized by trading assets with which a trader is already familiar. For example, a trader who also works in the oil business should aim to trade oil on the commodities market or the shares of major oil companies. However, trading a single asset will be far too restrictive, and will limit the opportunities for trading success. Trading different assets in various markets will spread the risk, so the best advice is always to gain familiarity in new areas by performing sufficient research and analysis as outlined above. Limiting your trades Making a succession of bad trades, will quickly exhaust available profit. When a trader hits a bad run, he can simply stop trading. If he does that, however, he won t know when his bad run has come to an end. The best strategy, therefore, would be to keep trading but with reduced stakes. A good risk management strategy is often to limit each trade to a set percentage of existing capital. A ballpark figure would be to never risk more than 8.5% of your existing profits on one trade. This means you would have to make eleven consecutive bad trades before you completely expended your capital. It also means that the amount at risk gets progressively less when you are losing but then starts to increase when you enter a winning streak so that, in turn, you also stand to make more profit. Choosing the right Broker Your decision on which broker to trade with holds great importance to both your success potential and your entire trading experience. Trading with a professional binary options broker like Master Option ensures you have the highest chances of achieving lucrative profits, while using a highly-advanced and completely safe trading platform. Also, whether you re an experienced or a novice trader, there s always a chance you will need some level of support: While service level tends to vary between different brokers, Master Option provides the highest level possible of customer support. We employ an attentive customer support center, alongside professional and experienced account managers, available to your every question, throughout all trading hours. 27 TIPS FOR YOUR SUCCESS