In this comprehensive guide, we will discuss what we believe to be the five best Binomo trading strategies, providing a detailed overview of each strategy, how to apply it, and its distinct pros and cons. Furthermore, we will cover how to develop your own Binomo trading strategy, why it is essential, and the practical steps you can take now.
Here are the 5 best trading strategies on Binomo:
- Price Action
- Candlestick Pattern
- Support and Resistance
- News Trading
- Fundamental Analysis
(Risk warning: Trading involves risks)
The 5 Best Trading Strategies on Binomo: A Detailed Look
What you will read in this Post
The following are what we believe to be the five best trading strategies on Binomo that you can adopt:
1. Price Action Trading
Explanation
Price action is perhaps what many traders consider the “purest” form of technical analysis. Simply put, price action analyzes the historical movement of a particular asset over a given period. There are no indicators, no news, and no fundamental analysis involved. In this setup, you only look at price and volume (optional).
How to Apply
Being the simplest, you only need to load your Binomo chart platform, and the first thing that will appear is the historical price movement of your selected asset. Below is an example of a bare naked chart in Binomo. As you can see, the chart only shows the historical price movement in the form of candlesticks.
Sample Analysis
By applying simple channels (under Binomo’s drawing tools), we can begin to observe that the price was experiencing an overall downtrend during the given period. This is clearly seen on the downward slope of the first channel in the chart. Afterward, the price recovered briefly before continuing its downward trajectory, as seen in the second channel. Overall, we can see that this asset’s overall direction is pointing downwards.
- Encourages mastery of fundamentals: It encourages mastery of technical analysis fundamentals. Many traders have jumped to using complex indicators before sufficiently understanding price action, resulting in a “gap” in their trading knowledge.
- Adaptability: When you master price action, you will easily adapt to trading different asset classes since all use a price chart. Key price action concepts are shared by most asset classes.
- Subjectivity: Despite its simplicity, it can be subjective depending on the timeframe and your trading objective. Hence, it is crucial to pick the correct timeframe and know your trading objective beforehand.
- Risk of Noise: In relation to point #1, utilizing a price action strategy can be prone to noise in lower time frames. This is because the price trend can be random versus longer timeframes.
(Risk warning: Trading involves risks)
2. Candlestick Pattern Trading
Explanation
A candlestick represents the price movement of the asset in one unit of timeframe (per minute on a minutes chart, per hour on an hourly chart, etc.). Both price action and candlestick patterns analyze the price movement of an asset. The key difference is that candlestick patterns tend to be more micro and only consider a few (less than five) candlesticks at a time, while price action tends to be more macro, often looking at hundreds of candlesticks at a time, just like the charts above.
Sample Analysis
A candlestick pattern can be categorized as either bullish (the price will likely go up following this pattern), bearish (the price will likely go down), and neutral or indecisive (there is no clear bias where the price may go next). There are numerous candlestick patterns, but the above ten are some of the most common patterns you may encounter.
Here’s what they indicate:
- Bullish Candlestick Pattern – Hammer, Bullish Engulfing, Morning Star, and three soldiers
- Bearish Candlestick Pattern – Shooting Star, Bearish Engulfing, Evening Star, and three crows
- Neutral / Indecisive – Doji and Spinning Tops
Note: These candlestick patterns are more reliable when they occur on key price levels (support and resistances) versus when there is no clear trend and are not in areas of support or resistance.
- More reliable on shorter timeframes: Compared to price action, candlestick patterns are more reliable in scalping and short-term trading.
- Immediate feedback: When mastered, seeing a pattern automatically connotates its sentiment (bullish, bearish, or neutral), easing your analysis.
- False signals: Candlestick patterns can provide false signals, especially when used incorrectly (like during choppy market periods).
- Lagging nature: Candlestick patterns need to develop before you can determine the prevailing short-term sentiment. So, if the asset is highly volatile, your entry may be late.
(Risk warning: Trading involves risks)
3. Support and Resistance Trading
Explanation
Support and resistance are key price levels that serve as barriers to the price. Support represents a key price level or area with strong buying pressure. Hence, when the price approaches this area, this buying pressure will stop the price from going further down and eventually push it upwards. In contrast, resistance represents a key price level or area with strong selling pressure. Thus, when the price approaches this area, the selling pressure will prevent it from going further up and eventually push it downwards.
Note: Since support and resistance areas are key price levels, a support area can eventually become a resistance area in the future and vice versa.
Sample Analysis
Using Binomo’s drawing tools, we can observe these two levels. The bottom rectangle represents the support area in the chart, while the upper rectangle represents the resistance area. We can see that the price struggles to break the resistance area and eventually falls down. On the other hand, we can see the bottom support area preventing the price from going down until it finally broke. In this case, we can observe that the two previous support areas eventually become resistances as the price trend points downward.
- Visual Simplicity: Identifying support and resistance levels is relatively easy by simply looking at the chart and reviewing how the price reacted in the past.
- Versatility: Mastering the concept of support and resistance allows you to use it seamlessly on different markets and assets.
- Not foolproof: When an asset is trending (backed with massive volume), it can easily pierce through these levels (known as breakouts/breakdowns).
- Subjectivity: Determining the exact support or resistance area can be highly subjective. This is especially true when deciding these key price levels’ upper and lower boundaries.
(Risk warning: Trading involves risks)
4. News Trading
Explanation
As the name implies, news trading involves taking advantage of news from key announcements and events both domestically and internationally. This involves closely monitoring what is currently happening and anticipating potential events. The approach to news trading varies from trader to trader. Some traders subscribe to premium news outlets and terminals to get news as quickly as possible and act upon it. Other traders may choose to wait to see how the news impacts the market; if they think the market is underreacted or overreacted, they may pick a position that counters the general price trend.
Sample Analysis
In Google’s news section, numerous news items appear and disappear regularly. Hence, it’s crucial to know which are relevant and which are not. For example, the first two articles discuss the dollar’s growing strength. We can then choose to trade USD pairs, knowing that it will likely continue its strength moving forward. Nevertheless, being adept with macroeconomic concepts (such as the relationship of USD with financial assets and the effects of rising or falling interest rates) is key to acting swiftly yet informed in your trading activity.
- High profit potential: It can be highly profitable, especially if you get the correct timing to execute your trades and you have access to premium news services and terminals.
- Clear strategy: You can set a clear strategy from the beginning. For example, you may decide to go long or short on Apple on the day of their quarterly earnings announcement.
- High risk due to uncertainty: Despite its high-profit potential when your forecast is correct on where the price of an asset will go. This scenario does not always work out. In fact, assets may not move in the direction you anticipate them to go.
- Speed of execution: If you are leveraging that a particular event will reflect the asset immediately, the speed of your trade execution is paramount to take advantage of this.
(Risk warning: Trading involves risks)
5. Fundamental Analysis (FA)
Explanation
Finally, and perhaps the most tedious among all these trading strategies, is performing a fundamental analysis. Unlike technical analysis, which mainly utilizes historical price movements and technical tools, fundamental analysis strives to determine the “intrinsic” value of a particular asset. If the asset is a stock, this may involve reviewing its business model, competitive advantage, industry comparison, the company’s management, performing a financial analysis of its financial statements (income statement, balance sheet, and cash flows), performing ratio analysis (profitability, liquidity, leverage, and efficiency ratios), performing valuation techniques, and evaluating the current economic and market conditions.
Sample Analysis
As we have described, fundamental analysis can require a lot of work. For example, FA includes reviewing a company’s earnings. On Binomo, a handful of stocks are available to trade, including the biggest publicly traded companies: Apple, Google, and Microsoft. For example, if you pick Apple, you will then have to perform many of the activities above to determine whether you will go long or short.
Note: Fundamental analysis requires long hours of learning to perform properly (especially if you have no business background or education). For context, a large bank or brokerage usually employs multiple professionals to focus on one or a few areas for its fundamental analysis. Thus, this strategy arguably requires the highest commitment to master.
- Deep understanding of an asset: FA helps you develop a holistic perspective of a specific asset and the driving forces of its price movement.
- Determines the “intrinsic value” of an asset: If done correctly, FA can determine a value close to its intrinsic value. This will help set expectations on where the price of the asset will likely go over the long term.
- Time consuming: FA is highly time-consuming and may not be optimal for short-term options trading in Binomo.
- Complexity: FA is not beginner-friendly simply because of the rigorousness of fundamental analysis. You may be overwhelmed with data and stuck in “analysis paralysis.”
(Risk warning: Trading involves risks)
Why should I use a trading strategy on Binomo?
Having a trading strategy on Binomo is crucial for your long-term trading success. Aside from other general benefits of a trading strategy (like avoiding overtrading and becoming methodical), remember that Binomo’s assets have a skewed payout ratio (the payout is lower than your risked amount).
For example, Apple Options has a payout ratio of 75%. This means that for every $1 you risk on a trade, you stand to gain only $0.75 return. Hence, the risk-reward ratio is clearly unfavorable compared to other markets. Thus, to become a successful trader, you need a trading strategy that offsets and surpasses this inherent disadvantage otherwise, you will just gamble your money away.
How to implement these strategies in your trading plan
Here’s a simple five-step progress you can follow to implement one or more of these strategies in your trading plan:
Step 1: Pick a strategy
First, choose one of the five strategies we laid out in this guide.
Step 2: Learn the strategy intently
Second, take your time to learn this strategy in depth
Step 3: Create a simple trading strategy based on fundamental principles
Third, apply your key learnings by making a simple trading strategy backed by your chosen strategy’s fundamental principles
Step 4: Test it on demo trading and refine
Fourth, test your strategy on demo trading and record your results (including your win/loss rate). Then, continuously refine your strategy.
Step 5: Utilize it on your live account
Finally, start using it on your live account. Remember to start small and record your results. Then, like in demo trading, continuously refine your strategy.
Conclusion
In summary, various strategies can be used in Binomo. Price action, candlestick pattern, and support and resistances are key technical analysis concepts that you can combine effectively after mastering each of the three strategies. As a beginner, we recommend learning and mastering one or more of these three strategies. In contrast, news trading and fundamental analysis are more nuanced and require a higher commitment to mastery. Hence, these two strategies are more suitable for intermediate to advanced traders.
(Risk warning: Trading involves risks)
FAQs – Most Asked Questions
What are the simplest trading strategies I can learn?
The simplest trading strategies you can learn are price action and support and resistance. These two strategies are beginner-friendly and relatively easy to learn, even as a total beginner in trading.
What is the hardest trading strategy to adopt?
The hardest strategy to use among the five is fundamental analysis. This is because there is no clear-cut way of doing it, and it requires a working knowledge of business, finance, and accounting to perform properly. In addition, it also takes the longest to perform.
Do I need to memorize all candlestick patterns to use it?
No, you need not memorize all candlestick patterns, including their names. Instead, you just need to know what they signify—bullish, bearish, or neutral. After learning price action and support and resistance, you will develop a more “instinctual” understanding of these candlestick patterns.
Which is the best trading strategy?
There is no single best trading strategy for everyone. Nevertheless, you can find the strategy that works best for you by exploring and experimenting with these five trading strategies. When you’re starting, just pick one strategy to follow at a time to avoid being overwhelmed and promote trading mastery.
Can I develop a trading strategy just based on the chart’s price?
Yes, you do not need to use complex technical indicators and tools to have a working trading strategy. By mastering price action, you can trade successfully just by analyzing the price movement in the chart.
