For any trader who is getting started with binary options trading, success is attributable to the ability to predict prive movements and the expected duration of these movements. As might be expected, this is not as simple as it sounds, and those investors who are most successful use strategies and rules that they have developed through their own experience, by using the experience of others and by using tried and tested prediction methods. However there is one theory which never changes, and that is to always take advantage of a powerful move in the market as soon as it is observed. This is a strategy which is popularly adopted, especially among novice traders, and which often achieves a reasonable level of success.
The general opinion is that the market’s most powerful moves will occur when a bullish trend exists that overtakes its prior highs, or a bearish trend exists which is overtaking its prior lows, signifying that the market is either falling or rising. When a trader participates in binary options trading, they should know that it is always best to execute call options based on the market’s strength and to execute put options based on the market’s weakness.
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Is Buying Strength/Selling Weakness a Solid Strategy?
While buying strength and selling weakness represents a solid and relatively simple trading strategy, of course purchasing or selling at the lows and highs of the financial market is never risk free. The market may at any time reverse its trend, and this results in losses as well as gains. This is one of the reasons why a number of traders choose to avoid trading at points at which the direction of the trend may change at any time. There are, however, plenty of investors who disagree with this approach and who believe that if the market for their chosen asset has been strong enough to reach its prior highs, there is every reason to believe that it will continue rising in that same direction. They prefer to buy and board this trend as their chosen asset is in demand still. Conversely, the opposite may also be true when it comes to selling lows and purchasing put options. It is therefore vital to discover how to identify continuing trends through technical analysis and to become proficient in the use of continuations patterns in trading like pennants and flags in order to achieve the greatest success when adopting this strategy.
What About Buying Weakness/Selling Strength as a Strategy?
There is, however, another school of thought which suggests that in some situations, it may be better to counter the trend and to buy weakness and sell strength. If an asset’s trading has reached the high end of its annual range, or if it has just made a clear move to the upside, it can be assumed that the price will not continue ascending so rapidly. If an investor places a contrary trade based on that assumption, they are selling into strength and are hoping to profit from the asset’s price decrease. If the asset, on the other hand, is trading at the lower end of its annual range, or has just made a clear move to the downside, it can be assumed that the asset will not continue descending at such a rapid speed and therefore a trader may decide to buy into weakness to try to profit from the anticipated change in the trend. This strategy however can be more complicated and more risky, especially for the beginner trader, and therefore it is probably wise for novices to go with the trend and buy into strength and sell into weakness until they find their footing in the financial markets.
Other educational articles
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- What is the Double Top and Double Bottom Pattern in Binary Options Trading?
- What are Japanese Candlesticks in Binary Options Trading?
- What is the Trend Following Binary Options Trading Strategy?
- Use the Straddle Strategy for a Possible Put and Call Double-Win
- “This may be the most important book on stops of this decade for the general investor.” Bassetti, W. H. C. “StairStops”
- The Challenges of Aligning Strategy with an Emerging Market Institutional and Regulatory Environment. Toft, A., 2013.