Binary options are an interesting investment opportunity for traders and each individual needs to have a strategy so that they are able to minimize loss and maximize profits. One aspect that is often overlooked by traders is entry/exit strategy. The strategy that you choose can reflect your individual trading style.
- Many factors determine the proper entry strategy, you choose when trading. They include the type of investor (speculative or conservative) you are, asset class, whether you follow fundamental or technical analysis and short term or long term asset movement.
- The asset classes that are traded in binary options include stocks, currencies, commodities, indices and bonds. Depending on the asset you wish to trade, you can choose your strategy.
- The best entry strategy includes investing only a part of the underlying asset, if you do not want to risk the entire investment.
- The other aspect that the trader needs to concentrate on is volatility. High volatility is considered negative if you are trading for the range option. However it can be positive for traders who want to hedge later on the range option.
Before you choose a strategy it is best to look at the economic calendar as many financial announcements affect the direction of the market. You can wait to make an entry if you know how the markets react to these news or announcements. You can also choose to enter the market when it opens or closes depending on your individual style of trading.
- Exit strategy should never be overlooked if you want to safeguard your investments. You may have to hold on to the options till expiry in binary options but some brokers have started offering early exits.
- When you choose an early exit option you may be able to close the option before expiry.
- The main reason why many traders are opting for this is when the asset starts moving in the opposite direction to the one you preferred. You may lose money if the asset continues to move in the opposite direction. When you close early, you may be able to get some profit from the option.
- Early closing can act as a hedge and enables you to take a reduced profit. You may also be able to buy more options when you close early as it releases money that was locked earlier.
- You can choose to close early on high/low, range and touch/no touch binary options. Each asset class has periods of high and low volatility. This can determine the action that you need to take in the asset class you are trading.
The entry/exit strategy enables the trader to enhance profitability and reduce risks. It is a good money management strategy that allows traders to plan their trade in a systematic manner.