Binary options have been quite popular with Forex traders, but many with experience in the Forex market face inexplicable difficulties when they make the transition from the one type of trading to the other.
Have you ever found yourself in this category? If you’re like a lot of other traders who have made the transition, you probably have a high level of knowledge when it comes to the markets, but for some reason that knowledge isn’t spelling success like it should.
Our goal here is to help you understand why these two types of trading are not the same, and how you can successfully use your Forex background to become a more skilled binary options trader.
Focus on What You Know
Let’s start by taking a step back and looking at what you already know. This includes the currency pairs that you typically trade and the tools that you use to make your decisions. Most Forex traders find success when they focus on just one or two specific pairs. Binary options brokers tend to have a heavy focus on currency pairs, so there is a high likelihood that if you trade the pair on a Forex platform that you will find it available to you on a binary options platform.
Next, look at the tools you use for analysis. If you’re like me, you use MetaTrader 4 for your charting. Now, you can’t make trades directly from MetaTrader in binary options like you can for your Forex trading, but that doesn’t mean that it can’t be used for analysis.This will still be your best resource because it is a free tool, and it is far more accurate and customizable than any free tools that your new binary options broker will provide for you.
Making the Transition
Take a step back for a moment and look at your Forex trading from a different point of view. If you examine how long your trades are typically open, how long would you say your average open trade lasts? A minute? Ten minutes? A couple hours? Personally speaking, I tend to see a mixture. Sometimes a trade is too good to not close after a few minutes. In other instances, the trades will linger longer, and it will be a couple hours before I decide to cut my losses and let the spread have its win over my profits so that I can reinvest that money. This can be hard to do, but hopefully your trade history has been properly saved and you know how to access it.
Now, divide your trades up by timeframe. Binary options work on expiries, so we need a firm idea of which Forex trades have lasted a few minutes, which have last a few hours, and so on. This step can take some time, but the couple hours it might take you to do this (I recommend using a spreadsheet to organize your data!) is well worth it.
Once your data is organized in a way that works for you, look at where you’ve been the most profitable. Is it 5 minute trades? 4 hour trades? Less than a minute? Figure this out, then we can dive into why you were successful.
If you have found that your most successful trades range between 5 and 15 minutes in length, then your path forward is pretty clear. These are some of the most popularly used binary options expiries, and for a good reason. They are quick trades which allows you to keep your money turning over and working more heavily for you, and they are long enough that skilled technical analysts can successfully trade them with a degree of accuracy. If you don’t fit into this range, don’t worry. There are expiries ranging from 30 seconds to one year in length. There’s a trade for you out there.
Now that we know what we are trading, we need to know how. First, let’s be clear that we are only referring to the traditional call and put binary options in this outline. There are other types of trades out there, but they are harder to apply to your routine with success. Unless you have a few years of experience with binary trading, we encourage you to stick to the standard call/put variety until you are confident in not only your analysis skills, but also your risk management.
As a Forex trader, you need to have tools in your arsenal to make informed decisions. You wouldn’t buy EUR/USD without having an informed opinion that it was going to rise. What tools did you use to create that opinion? Maybe you used MACD or Fibonacci markers. Maybe you look for specific candlestick patterns like the Shooting Star. Whatever it was that worked for you, make sure that you replicate it as closely as possible, keeping in mind that your expiries now should match your most successful trade timeframes as closely as possible. Whatever the methods you used for your 5 to 15 minute trades before, use them again. The difference is that instead of going directly through MetaTrader, you are now watching MetaTrader, then executing trades through the web based binary platform.
Bringing it Together
The transition from Forex trading to binary options trading is not nearly as simple as you might think at first. And that’s okay. The time that you spend analyzing your trades and the time that you spend applying it in this new circumstance will pay off for you, even if you decide never to trade in the binary options world. The time you take looking at your successes and failures and figuring out why they worked that way will help you to be a better trader regardless. It can help improve your profit rate even if you never transition into binaries.
The goal is to make the transition between your success as a Forex trader into future success as a binary options trader as seamless as possible. It isn’t a simple process, as you have probably noticed, because trades do not operate in the same manner. However, by looking at the patterns that have proven to be successful for you in one market, and then replicating those conditions as best as possible in the new market is one way that I have found to be successful. To do this is tough because no software really exists to sort these things out yet. Yes, you can use a trading robot, but this doesn’t allow you to have the level of control over your trades that you probably desire. Until then, traders need to pave the way themselves. Hopefully, this brief outline of my methods to do so have been helpful.
The method outlined above is simple, but it is time consuming. The time you spend will give you a more honest look at your own trading, and this is well worth the effort as it will improve your Forex trading while helping you to break into the binary options market with a higher degree of success