Binary options are considered to be one of the most straightforward trading instruments. Nevertheless, it’s still essential to get correct signals in order to be successful in trading binary options. Not all the signals offered by companies are trustworthy. Thus, you should know how to determine which signals will improve your profitable trading.
Binary Option: The Core
Before we explain how to get trading signals, let’s clarify what a binary option is. A binary option is a financial instrument used by traders to make a profit. It’s one of the simplest tools. Firstly, it’s based on a “yes/no” scheme, so a trader only needs to predict whether the market will meet the determined conditions or not.
Secondly, it expires on its own, meaning that you don’t need to spend a lot of time in front of a monitor to follow the market and close the trade at the perfect level.
However, to be successful with binary options, it’s essential to identify correct signals. Let’s find out how to avoid being fooled by misleading information.
Free Doesn’t Mean Good
Options signals, in the same way as any other signs, provide information on the market’s possible direction.
They are made by experts and analysts and are built around their knowledge, skills, and ability to follow specific market conditions or robots using specific algorithms. Usually, signals release information on entry, exit, and stop-loss points.
There are several types of signals. They differ in terms of their costs, percentage correctnesses, and sources.
- Free signals. Usually, free signals are given out by companies to attract new users. Some providers work with brokers. So, to get signals, you will have to register on a broker’s website. It’s likely that the signals you’ll get won’t be as profitable as you’d like. Nevertheless, you can use this type of signal to gain experience and compare free signals with paid ones to identify an effective signal.
- Paid signals. These signals are submitted by one source and delivered to you via email. It could either be a simple “call” and “put” signal for a specific security or a sign with some text explaining market conditions. Paid signals are more reliable than free ones, but finding a trusty source is still crucial.
- Multiple-sources signals. These signals are also submitted to your email. They combine information from several sources about a particular trade. These can also be signals from an expert confirmed by an automated algorithm.
- Program signals. As is the case in any other market, you can install a program or robot which will alert you to the market conditions appropriate for a specific action. Robots have multiple pros. For example, they eliminate human error and are based around accurate formulas.
- Educational signals. This category doesn’t directly relate to signals but is crucial if you take a long-term perspective regarding binary options trading. Educational materials offer strategies, patterns, and other advice on building your own signals. This information isn’t provided to help you gain profit instantly but is investing in your future trading.
How to Determine the Best Signal
The idea behind the binary option is simple: you win if your prediction is correct, you lose if it’s wrong. At the heart of your profit is the right signal, which will determine the outcome of your trade.
Traders prefer signals over self-analysis due to several reasons.
- Firstly, signals are created by professionals, which is supposed to be a sign of their reliability.
- Secondly, they don’t take up any of your time: you can get signals delivered daily at a specific time to your email address.
- Thirdly, you don’t have to put any effort into examining the market, evaluating different possibilities, finding patterns, etc.
Why did we say “which is supposed to be a sign of reliability”? Because not all the signals are developed by experts in the market. Anyone could just read some articles and pretend to be a professional analyst.
What should you do in such a situation? You should learn how to predict the markets yourself and find a source that only provides trustworthy signals. Let’s take a look at the characteristics of reliable signals.
- Full information. A reliable provider should accompany its signals with charts and explanations. Thus, you will see that signals are based on real market conditions. Also, it’s an excellent opportunity to use the information for your own education. You can learn from reading the opinions of experts.
- Confirmation. Any reliable source should be able to send you data regarding its performance, so you can see whether its success rate is high or not. The success rate is presented in percentages. An acceptable success rate is 75-80%.
- Instant wealth. It’s easy to be drawn in when you hear that you will become rich in just a few trades. However, you should understand that all markets are, to some extent, unpredictable. No strategy guarantees a 100% successful result.
- Frequent signals. It’s essential to know how many signals you will get and at what frequency. The frequency isn’t regulated. Therefore, each provider enforces its own rules.
- Price. There is no perfect price for the signals. However, you can evaluate the service and the price to decide whether it’s worth the money.
- Trial period. Any reliable service provides a trial period to prove its quality. If a provider gives you the option to try its signals for free, it deserves your trust.
- Bonus. Previously, we talked about the importance of self-education. Thus, if your provider offers some educational materials, it’s a great bonus.
- Register and become rich. If a company requires you to register on a broker’s website, it’s better to leave that provider.
Learn How the Market Works
We mentioned plenty of factors that will help you identify premium signals. However, if you don’t know how to forecast market shifts, it’s unlikely that you will know how to evaluate the effectiveness of signals.
There are two types of analysis. These are technical and fundamental. Technical analysis is based on charts, patterns, and indicators, whereas fundamental analysis applies to news and economic data.
Here are the most well-known factors which can cause an algorithm or an analyst to make a signal.
- Sharp movements. A strong rise or fall of an asset indicates a swift return to the previous direction. The signal is more robust if you consider long-term trends. Thus, if an asset rises in the long term, but unexpectedly falls in the short term, it’s more likely the rebound will occur soon.
- Breakouts. The sharp movement may be a false signal if you find a breakout on the chart. A breakout is an event that occurs when a price breaks above strong resistance or falls below strong support. Such an event may cause a trend reversal.
- News. All significant market fluctuations are based on economic data and news. There are different kinds of news. They differ based on the security of your trades. However, global announcements affect every financial market. If you trade binary stock options, you should follow relevant industry and company news. If you are in binary options trading in Forex, you should follow global news and national news.
- Economic data. Economic data is a type of news factor. These are essential economic releases that determine the health of the economy, industry, or company.
Rules to Follow
Here is a small summary that will help you determine which signals are strong and structure your binary options trading.
- Binary options signals are reliable, and we suggest you follow them. However, you should check all the guidelines mentioned above to find a trustworthy provider.
- If some signals aren’t free, it doesn’t mean that a provider wants to fool you. It’s more likely that these signals will be more reliable. However, the price should be comparable to the success rate.
- The success rate is one of the essential factors you should check to determine a signal’s effectiveness. Another critical factor is the information provided by the signal. Additionally, basic entry, exit, and stop-loss level signals should provide additional information on market conditions.
- The signals can be submitted both by analysts and software. But experts can also use algorithms to get a confirmation.
- And lastly, but most importantly: you shouldn’t blindly follow signals. Even if your provider shows an excellent success rate, you should accept that mistakes can happen. That’s why it’s crucial to know how the market works, what events can affect the market, and how the market behaves in different circumstances.
To conclude, although binary options are one of the most accessible financial instruments, it’s essential to know how to get reliable signals if you want to make a profit. Traders prefer signals over self-analysis as they are accurate, provided directly to a trader, and don’t require time and effort. However, in order to avoid being fooled by incorrect signals, it’s essential to find a reliable provider and compare its signals with your own analysis. Also, you can use a demo account, which will allow you to check the signals for free before entering the real market.