Binary Options Straddle Strategy
There are a variety of different strategies which can be used when trading in binary options; some are relatively low risk whilst others are higher risk. In general the greater the risk associated with a trade the larger the reward. Most of the strategies which have been developed are aimed at perceived weaknesses in the binary market. Many of these weak areas revolve around when the price of an asset will change direction, in some ways this is an easier thing to predict than simply continuing the current price trend. The result of this is an abundance of tactics designed to maximize your return on investment as the price reverses.
A binary option straddle strategy offers an opportunity to take advantage of when a price will change direction, whilst reducing the risk by placing a contrasting trade. The basis of this approach is simple; the RSI of an asset is used to establish how strong a current price trend is, once this has been identified you can place a trade which goes against the direction the price is currently moving in. You can then follow this up with a second trade which goes with the market trend. The principle behind this is that the cost of both trades is less than the profit possible on either one of the trades. Reading the RSI is simple, if it moves above seventy the price is likely to change direction; but only in the short term. If it goes below the thirty then the trend is likely to be longer term. Both trades carry risk although the longer term change in price direction is likely to provide more risk simply because the trade is longer and in a volatile market what has been trading in the way you expected can change just moments before your trade completes.
To fully understand how the binary options straddle strategy works, it is easier to work through an example:
After accessing your short term; for example five minute charts, you will see that a specific asset has an RSI which is well above seventy. As the asset is now being stretched it is ripe for a price correction. You should, therefore, purchase a downward trade for fifteen minutes. For the purpose of the example, it can be said to cost $20 with a return of ninety percent. The market then changes direction as expected and drops dramatically; meaning that your trade is in the money. However, the RSI quickly goes below thirty indicating another price direction change. To protect your position you could invest a further $10 on an upward price movement. The higher risk of this trade will provide a return of one hundred and fifty percent.
If the first trade finishes in the money you will generate a profit of $18, your returned funds will be $38 which will provide a profit after the $30 costs for both trades. If the second trade ends up in a profit you will have a $15 profit; giving you back $25 of your initial investment; dramatically reducing the risk of the trade. It is possible for both trades to make a loss or a profit, especially in a volatile market. This is because it is impossible to place both trades at the same time. However, correct implication of the binary option straddle strategy should do more than just reduce the risk; it should assist you in making a reasonable profit.
It is important to note that this tactic is best employed when the market is not expecting any significant news; this will add in a huge amount of volatility which will make it difficult, if not impossible to trade successfully.