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Binary Options Trading: Understanding the Different Ways to Trade the Market by UltraTrade

Understanding the Different Ways to Trade the Binary Options Market by UltraTradeBefore you open a trading account and invest in binary options, understanding the different styles of operating in the market is crucial to progressing from novice to professional status. In a solitary career path or business venture like trading, it’s fairly difficult to maintain discipline in learning as much as you can without getting distracted by your favorite TV series or a football game at your local sports center.

Importance of Learning Different Trading Styles

There is no one-way ticket or Holy Grail system for trading binary options, stocks, currencies, commodities, or any other financial market for that matter. An intersection between technical and fundamental knowledge and skill in managing risk must first occur. Knowing the different styles allows you to be more flexible to constantly changing market conditions and provide you with tools to trade in any market cycle that presents itself or investment vehicle that you decide to pursue.

Why Binary? 

Binary options is relatively simple, given the fact that positions are either a zero or one, yes or no, profit or loss. Stocks, on the other hand, can have several possible outcomes. It could break even, result in a minor loss or minor profit, result in major losses or major profits, result in a doubled account size or margin called. While most traders do not like the fact that potential gains are capped, binary options contracts also cap the potential risk of any given trade, which avoids any one losing trade from direly affecting your ability to participate in the market.

Technical Analysis

Technical analysis involves historic price data to make market predictions. If moving averages are pointing upwards, a trader will open a Call option with the anticipation that price will continue to move in an upward trajectory before the contract expires. If the underlying market is trending downwards, you can implement the same concept but with a bearish bias in place. Technical analysis is all about numbers and data crunching. It’s about making money with well-researched and rigorously tested algorithms and indicators. The simplest form of technical analysis includes moving averages, Stochastics, Relative Strength Index, and Bollinger Bands. At first glance, these indicators look like mere scribbles, but they are actually visible manifestations of price direction.

Fundamental Analysis 

Viewing the market from a fundamental lens gives a trader a different perspective of how they translate current price action. Fundamental analysis involves macroeconomic factors including imbalances in supply and demand of an economy, changes in political and economic climate, and even company reports that signal health or impending doom. Fundamental trading has to do more with the interrelation of economic events unfolding around the world than it does about algorithms derived from historical data. A fundamental style of trading actually fits the profile of long-term investors rather than day traders and scalpers since economic shifts tend to take more time to unfold.

Pure Price Action

Over the years, a new way of understanding price action in the binary options market has emerged. Price action trading can also be referred to as naked trading since the charts are clean and, well, naked. A well-developed and intuitive platform like UltraTrade offers real-time price updates in various financial assets, mainly in binary options. Price action trading may also be complemented with studies in candlestick patterns, which offers a more informative view of price action as opposed to bar and line charts.

Choosing a Style That Fits You 

Try to get a feel of what trading style best complements your personality, stock knowledge, and past experience. For instance, people who love processing numbers and working with complex math formulas will find technical analysis to be a more congruent trading style than, say, price action which offers little to nil logical patterns. Besides trading style, examine other factors like underlying assets you are most suited for, type of trading account that is best to start with, and even your computer setup or the number of screens you should have. All of these factors, while seemingly nominal when taken individually, can improve your odds of long-term profitability.

Example of Binary Trading Style 

Perhaps the simplest and oldest trading strategy is the trend-following strategy, which can be traced far back at times when binary options weren’t even being offered as a tradable product. Check your UltraTrade platform for price patterns exhibiting a consolidating downtrend. Load up on Call options when the asset’s price breaks the apparent trend line. If the trend line is upwards, choose a Put option when price breaks lower.

Summary

Whether you call it trading or investing, placing bets in the binary options market involves risk. Acknowledging and respecting this fact will help you protect your capital better. Regardless of which style you choose, practicing risk management habits at all times will make the difference between profitability and bankruptcy.

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