A good binary options trading strategy is naturally one that brings profits on the regular basis. This can be achieved in few different ways.
1. Binary options trading strategy generates more loses than wins and the average losing amount is smaller than the winning payout. Winning proceeds are higher than the losing amount in the long run.
2. Binary options trading strategy generates more wins than loses and the average win is lower than the average loss and the total amount won exceeds the total amount lost.
3. Binary options trading strategy generate more wins than loses in the long run and the average winning amount is higher (on average) than the losing amount.
Binary options trading strategy #1 is out of reach because although you can get great returns but they are very rarely exceed the amount needed to stay profitable.
This is an excellent example of the winning system widely used by professional futures traders. The profitable futures trading strategy generate large profits from small amount of trades hence the saying; 20% of trades generates 80% of profits. This is only possible in the futures and spot markets where the trader gets paid per tick and is in the position to ride the trends.
Binary options trading strategy #2 is most common for the binary options markets. Most binary traders trade only short maturity (less than one hour) therefore winning payout will be always smaller than the losing bet. With this approach, trader must go against the odds and design a strategy than generates more winners then losers to compensate for the unfavorable payouts. It is not always possible.The last trading strategy is a very rare strategy. If the trader is able to generate more wins than losses with the average loser being less than the average winner, it is definitely a recipe for a financial independence. This kind of strategy is a gold mine in the binary options trading industry. It is statistically sound approach is sustainable in the long run. This is the technique used by DailyOptionTrader.
There are few tasks to be perform before deciding on the strategy to be applied in binary options trading.
Breakeven Since the breakeven is achieved when the total amount won equals the total amount lost, it can be calculated using the following formula;
0 = Winning% X Average Return - (1 - Winning %) X Average loss
For example: Say the traded amount is constant (same every time), average return 70%, and the loss is 100% of the betting amount therefore;
0 = Winning% X 70% - (1 - 70%) X 100%
therefore; Winning % = 59%
With the strategy with the average return of 70%, you will need a winning accuracy of 59% to be profitable in binary options trading industry.
Expectancy A more general way to analyse any binary options trading strategy is computing its expectancy. This is a single number that combines the winning percentage with the average return. This number tells immediately if the trading strategy is worth perusing or not. If the expectancy is greater than 0, you should consider it, if it's not - move on from it. Formula is:
Expectancy = Average Return x Winning trades % - (1 - Winning trades %)
Say; binary options trading strategy has average return 70% and 65% accuracy
Expectancy = 70% X 65% - (1 - 65%) ; Expectancy = 0.105.
The strategy should be considered sound.Apart from the points above, the trader should consider other variable like trading times, asset class, brokers etc. It is important to get all variables tested before deciding to use them. Profitable binary options trading strategy combines only the most efficient choices.
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