Let me start this chapter with a further paradox of the binary instrument, and one which will also explain why I spent so much time in the previous chapter explaining the preparation phase for trading binaries.And the paradox is this. Simple they may be, but it is time which sets all options apart. In trading conventional instruments we can afford to wait. Time neither influences nor dictates whether a position is ultimately profitable or not.
For binaries, time is the ultimate arbiter of success. Fail to plan, or interpret the sea state accurately, and time will quite literally shipwreck your positions. This is the reason all trading strategies ultimately fail when applied with no regard to the market conditions. Typically a strategy will work for a while and then fail. The reason it fails is the market conditions have changed, and the strategy no longer works in those conditions.
This is why understanding and interpreting the market’s sea state is critical to your success, and why binary options require market analysis of the highest calibre. Forecast the sea state accurately, and you will succeed with these instruments. Fail to plan or take the time required, and you will ultimately fail. Time, like the devil, always collects, and the devil is in the detail. Focus on the detail and the options will look after themselves.
When choosing and applying a binary option strategy, whether off exchange or on exchange, there are four distinct approaches you can take. The one you ultimately select will be dictated by your experience,knowledge of the markets, and the time you have available. And perhaps more than any other, binary options are instruments that lend themselves to a ‘set and forget’ approach.
Even more so on the Nadex platform where all orders are executed using a limit order, allowing entry and exits to be accurately planned in advance.When considering a strategy to adopt (trading binary options or any other instruments), there are four approaches you can take, and these are as follows:
Multiple markets and multiple strategies
Single market and multiple strategies
Multiple markets and single strategy
Single market and single strategy
Multiple Markets & Multiple Strategies
Using this mapping strategy, you are happy to consider applying any strategy to any market. Your trading is indiscriminate and you are happy to select an appropriate strategy and apply this to the sea state in any market. You could consider this as the ‘Jack of all trades, and master of none’ approach, where you are simply looking for trading opportunities in all markets, in all timeframes and for all strategies.
Single Market & Multiple Strategies:This is a more targeted approach. Here you are focusing on one market, but prepared to apply a range of strategies which suit the sea state of the market. However, you are focused on one market which you understand well, and are simply identifying a market condition and then applying the appropriate strategy.
Multiple Markets & Single Strategy:This is the reverse of the above approach. Here you have focused and become an expert in one binary option strategy, which you then apply to any market. In this case you understand the strategy intimately, and are then hunting for opportunities to apply it, in whichever market has the appropriate sea state conditions.
Single Market & Single Strategy:This is the laser guided approach. Here you are mapping a single strategy to a single market. This requires patience. In this case you are a specialist both on the market and the strategy. All other trading strategies are ignored, and you only take a position in the market when this single strategy is relevant. The focus is on one market only, which you understand intimately and a strategy which you apply with precision.
These are the choices available to you as a binary options trader. Whichever you choose will depend on many factors, but choosing one and then honing this over time will help to shape your success using these instruments. I cannot stress this too strongly, and of the above, I would suggest you consider the more focused approaches of a single market or single strategy as your starting point.
And let me reinforce this aspect with a personal anecdote. One of my good friends, who is a proprietary trader, trades binary options on his personal account. He only trades one strategy which is then applied across all markets, and over the longer term timeframes of days, weeks and even months. This suits his trading style and personal life.You can think of this in much the same way as a sniper.
Here you are using a single shot from a high powered rifle for a high probability kill. The guiding principles are patience and planning, and it is just a question of waiting until the target is in the crosshair of your sights. Then fire. The strategy my fellow trader employs is the one touch/no touch option.