Binary Options trend following strategy

“The trend is your friend” is a well-known proverb. If you want to trade successfully you need to catch a trend or need to know when a trend is on the rise. On this page, I will show you how to use a trend following strategy with Binary Options. In the next paragraphs, you will find exact examples and a full tutorial on how to open a profitable trade.

What is a trend?

There is only one simple definition of the correct trend. The following example will show you what you have to look for. It is important to search for new highs or lows. For an uptrend, the market should make higher highs and higher lows. For a downtrend, the market should make lower lows and lower highs.

To find a trend is not simple because the chart is always different. Often you have to do a closer look into it. The next screenshot will show you an example of an uptrend:

Uptrend example

The same principle applies for a downtrend:

Downtrend example

Tip for finding a strong trend

Not every trend is strong. Often a trend will stop suddenly out of the nowhere and many traders get trapped. When you see a trend the market should break a high or low in the past. This sign can show us that the movement is strong enough to exist in longterm.

Example for a strong trend:

Sign for a strong trend

Why binary options?

Experienced traders know about the timing problem when entering and exiting a trading position, for example in the Forex market. They identify an uptrend in a currency pair and want to profit from it. Accordingly, they plan their entry and exit and open the position.

For hedging purposes, a stop-loss is placed below the last significant low point, which should minimize the risk of loss. Now, the Forex market is highly volatile, i.e. it is subject to large fluctuations – especially when important news reports such as key interest rate decisions by the central banks or the publication of labor market data are pending.

Forex loss trading scenario: the incipient upward trend in the AUD/USD correctly identified, but stopped. The profit target is not reached. So it can easily happen that the stop-loss is reached by a short price swing and the trade ends with a loss. In the worst case, extreme slippage (a worse execution of the stop order due to an abrupt price movement) ensures that the actual loss in the trade is even much higher than that calculated according to risk management.

Binary Options: Return and risk clearly defined

Binary Options elegantly circumvent this problem in that the risk is precisely defined from the outset. In classic call/put trading, only the direction of the price trend is determined, and, depending on the market assessment, either a call option on rising prices or a put option on falling prices is purchased. A loss only occurs if the option is out of the money at the end of the term, i.e. the price is quoted lower (in the case of a call option) or higher (in the case of a put option) than at the time the option was purchased.

How the price behaves during the term is not important. With most brokers, the trader can determine the risk himself, only a minimum trading amount must be used, which with some providers is only 10 Euros.

If the market assessment of the trader is correct at the end of the term of the option, i.e. if the price of the Australian Dollar in relation to the US Dollar has risen after the purchase of a call option on the AUD/USD currency pair, the trader makes a pre-defined profit on the invested capital, which, depending on the provider, is between 65% and 85%. A list of the returns can be found in the broker comparison.

See the best broker for trading Binary Options:

Broker:

Rating:

Advantages: 

Start trading: 

IQ Option logo
5/5

+ Yield up to 100%
+ Best platform
+ 24/7 support

Deriv logo
4.5/5

+ Yield up to 95%
+ Auto trading (bot)
+ MetaTrader 5

Pocket Option logo
4/5

+ Yield up to 92%
+ Bonus program
+ Accept any clients

Binary options: same setup as in the Forex example – with positive results. No stopping during the term – the option is in the money at the end of the term and the trader makes a profit. A big advantage when trading binary options is that you cannot be stopped out by an abrupt market movement, as is often the case with important news reports. Binary options are only settled at the end of the option term, the so-called expiration date of the option.

Practical implementation of the trend strategy

First, an account with a Binary Options broker is required. With IQ Option, an account can be opened with a minimum deposit of 10 Dollars, with a minimum trade amount of 1 Dollar per trade. IQ Option is also ideal because of the free demo account and the wide range of tradable assets, such as various currency pairs or international stock indices. For very active traders, it may also make sense to open an account with various Binary Options brokers.

The next step is to identify an existing trend and determine an entry point. Trends are always easily identified by a sequence of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend). It is also advisable to draw trend lines by connecting the lows or highs in order to be able to identify trend breaks earlier. Longer sideways phases can be used for early entry, as they often precede a trend continuation or trend reversal.

Adding indicators for analysis

Simple Moving Averages (SMA) can also be very useful in trend analysis. In general, one should keep an eye on the essentials and not try to complicate trading by wildly combining different indicators.

For example, you can combine a fast and slow moving average. If it crosses you can watch out for an entry with Binary Options. I recommend adding the RSI indicator to trade the pullbacks in the trend. It is very easy to find a good trade with this strategy.

See the example below:

Take advantage of this opportunity and keep yourself regularly informed about the latest events with the help of our Binary Options Review. Here you will find some links for a small test.

Often the charts available from Binary Options providers are not very detailed. Therefore, for the most professional approach, we recommend that you also open a free demo account with a forex broker in order to use better chart software for trend analysis. Brokers such as IQ Option are also suitable. IQ Option, unlike many competitors, also offers a suitable tool for professional chart analysis.

Once an up or downtrend in an underlying asset has been identified, a call or put option is purchased from IQ Option or another provider of Binary Options with the desired option term, thus implementing the trend following strategy.

Trading against the Trend

Trading against the trend can be very risky because you do not know when the market is turning around. Using the indicator RSI for a trend reversal can be painful from my experience.

I recommend combining support or resistance levels if you want to trade against the trend. The following example will show you how to do it. You see a trend which is active but the market reaches a resistance level where we can open a trade against the trend. The RSI also shows an overbought signal.

Trading Binary Options: these 5 steps lead to the first trade

Before using strategies like the trend following strategy for trading presented here, you should of course familiarize yourself with the relevant information on Binary Options. We have summarized the most important facts for this purpose and use the following points to show you how to get to your first trade in just a few steps without unnecessary detours.

  1. Understand the risk of Binary Options
  2. Understand the Trading platform
  3. Analyse the market and make a forecast
  4. Invest your amount of money
  5. Open the trade

Additional functions for more flexibility

Some providers of Binary Options offer useful additional functions that support risk management. For example, the “Early Closure” function allows many providers to close the position early in order to secure the existing book profit. In return, the options life can often be extended with the “RollOver” function to give the position more room to unfold, or simply to take advantage of a very strong trend and maximize profits.

For example, you can close the trade before it expire. I do not recommend to use this function because the trade can be profitable in the last seconds.

Conclusion: The Trend is important for Binary Options trading

If you want to make money with Binary Options you should be aware of market trends. It is one of the most important things to know for a trader. On this website I showed you how to find a trend in the chart and gave you tips for enter a Binary Options trade.

You can combine the trend with any trading strategy for Binary Options. For example you are using moving averages as support or resistance. Combine it with the trend and you will have better results. I wish you good luck with trading.

(Risk warning: Your capital is at risk)


Read my other articles about Binary Options:

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