When it comes to fast day trading, nothing quite beats trading a 60 second Binary Option.
However, is this a wise strategy? Can one legitimately make long term returns?
The answer is yes, but not without an accompanying strategy. This is because 60 second binary option trading is not for everyone. There are indeed inherent risks that people should take note of.
There are also a few parameters that have to be met before one can seek to realistically make any money with a 60 second strategy.
We will go over some of the most important requirements when trading 60 second options as well as some well established strategies.
What is a 60 Second Binary Option?
60 Second binary options are binary option trades with really short expiry times (60 seconds). For most brokers, this is also the shortest expiry time that they will offer on their platform.
Some brokers will also term these options as “turbo” options. In essence, the trader just needs to make a judgement call of whether the price of the option will go up or down in the next 60 seconds.
In terms of the types of binary options that they are, they are usually plain high / low binary options with payouts that range from 60-75%.
These payout numbers are not the best that one can get in the binary option industry. It is therefore advisable that you find a broker that is able to offer a 60 second binary option with a payout at the top of that range.
With a 75% win rate, in order to be in the money in the long run, the trader will need to achieve at least a 57% win rate.
Benefits of 60 Second Option Trading
It goes without saying that one of the main benefits of 60 second trading is that you can place trades very quickly and, as the thinking goes, make a lot of money very quickly.
They also allow you to trade on very small movements in the price of the underlying asset. In essence, all you really need is a few pips either up or down in order to make any money trading options with a 60 second expiry.
While other options are chosen strategically based on when the option is likely to expire in the money, 60 second options allow the trader to merely trade on short term expectations.
This means that 60 second binary option trading is best suited for numerous trend trading strategies. Trends with strong momentum are likely to remain that way in the really short term.
Drawbacks of 60 Second trading
Although one can make a lot of money in the short term with 60 second options, they can also lose a lot of money. Binary Options have a binary outcome and a negative payout is also likely.
Hence, when the trader is just placing trades for the sake of trading, then they are likely to have a negative return in the long run.
Remember, the required win rate in the long run is 57% in order to be profitable. If you are trading binary options like a roulette wheel, then your win rate will be closer to 50% and hence you will be in a losing position.
Moreover, there are no signal providers or professional copy traders who would even entertain the idea of trading 60 second binary options. This means that you have to be 100% comfortable with your strategy.
This is why you have to have a trading strategy to begin with. We have covered general binary option strategies separately but below are some of the top 60 second strategies that you can implement.
60 Second Binary Option Strategies
We will go through some of the best strategies that one can implement over a 1 minute time frame. These range from simple price action trading to trend following and scalping.
Before you can use any of these strategies to any sort of degree, you have to make sure that you have the right broker platform to trade with.
A binary option trader is only as good as their tools.
Finding the Best Platform
There are many brokers that offer the choice of trading 60 second options. However, not all platforms and brokers are equal.
If you are to be able to place short terms trades in an effective an efficient manner then you are most likely to profit.
First of all, you will need to make sure that the broker offers these types of instruments. For many brokers, this is not always an provided to the trader.
Once you have found yourself a broker that offers 60 second trades, you need to make certain that the technology is indeed technically responsive.
When placing trades over such a short time period, mere pips are going to impact on the your profit. If the broker’s platform is slow to respond then it could impact on the trade outcome.
When testing on the broker demo account, you are also able to become accustomed to the way one enters and exits trades.
We have tested the IQ option platform extensively if you are looking for a broker. It executes trades in a matter of milliseconds. You can read our IQ Option review for more information.
Strategy 1: Price Action Trading
This is a very well known form of short term trading that relies almost solely on movements in the price at the current time period. Price action traders use tools such as candlestick indicators to inform their decisions.
Price action strategies also work well when there is a lot of volatility in the price post an economic announcement of some sort.
For the 60 second binary option trader, price action events are a perfect opportunity to take advantage these really short term periods of price volatility.
In addition to the candlesticks, the price action trader will also need to have an indication of the prevailing volume in the market. As anyone may know, volume is essential when it comes to trending assets.
We will take a look at a 60 second option strategy on price action indicators. Below we have the a chart of GBP/CHF that is plotted with 1 minute candles. It is important that the time frame lines up with the option expiry time especially when using candles.
This was also at the same time that the Bank of England was making a decision on its interest rate policy. As one can see, there was a bullish engulfing pattern with increasing volume.
This is of course a bullish indicator and one should consider entering a CALL option. In this case, the trader would enter a long 1 minute CALL option on the asset.
The next candle ended in the money and up which means that the trade would have been profitable. There were also a number of other opportunities for the trader to have entered based on the candles going forward.
Strategy 2: Scalping
Scalping is a well known and established strategy in Forex and Stock trading. It is based on making a series of trades and taking a small profit on the arbitrage opportunities.
Scalpers will monitor a number of different charts looking for perfect entry and exit positions on a particular pair. Once they have executed a trade, they will also be looking for the best levels to sell the asset.
Scalpers are also generally technical analysts and will use tools in order to inform their decision of where the asset is likely to head.
We will take a look at an example of a scalping trade using a 60 second binary option. In the below we have a 1 minute chart of EUR/SEK. We have also plotted the MACD indicator as well as the RSI.
The MACD indicator is helpful for the scalper as it gives an indication of the strength of the trends. The RSI is an oscillator that helps the trader determine whether the pair is oversold (above 70) or overbought (below 30).
As one can see above, there was a Bullish crossover on the MACD indicator. The scalper will also observe that the RSI is in a reasonable range and is far away from “overbought” levels.
This means that the trader should look to entering a long position on the pair. The trader should enter a 1 minute CALL option on EUR/SEK.
If the trader had done that, then the 60 second trade would have ended in the money and the trader would have got the payout.
Strategy 3: Gap Trading
In periods when markets have relatively little volume and liquidity, price gaps tend to present themselves. This is essentially the price swinging wildly because there is not someone to take up the opposite position.
Price gaps are usually observed over night when most of the traders are asleep and volume is down. This presents a unique opportunity for a trader to swoop in and pick up the asset at that depressed rate.
It also allows the trader to short sell the asset if they are of the view that the price is too high in relation to it’s fundamental value.
These pricing anomalies however, don’t tend to last very long. This is because computer algorithms are designed to scour the market and locate these discrepancies. The trader will need to be fast to take advantage of these.
For the binary option trader who is using 60 second options, these market anomalies allow the them to make a quick profit before the algorithms pick up the mispricing.
If you are trading currencies, it will have to be at a time when the markets are at there most quite and volume is down. It also helps to trade a currency pair that is less liquid than the major pairs.
Taking a look at an example, we have SGD/JPY plotted below on a 1 minute chart with the volume beneath it. This was also at night on a Sunday evening, just before markets opened in Asia.
As you can see, there was a pronounced gap down on very little volume. This was clearly an indication that the price was depressed due to lack of liquidity.
Therefore, the trader could have taken the opportunity to go long the pair in the short term on the rebound. In the next minute the trader should have placed a 60 second binary CALL option on SGD/JPY.
As you can see, this would have expired in the money and paid the trader off. There were a number of different gaping opportunities prior to the Asian open that the trader could have used.
Although 60 second binary option trading may sound like a great way to make money trading in the short term, they are not for everyone. They also depend to a great deal on the personality of the trader.
It is essential that the trader remain analytical and calculating without allowing their emotions to take hold. This can be quite tough when one is placing trades with such a short expiry time.
With 60 second options, you also have to have a very strict risk management strategy in place. This is in order to avoid chasing losses and digging yourself into a deeper hole.
This risk management strategy should go hand in hand with en effective money management strategy as well. You should never trade more than 1-3% of your capital amount on each option trade.
In the end, 60 second binary option trading is a risk reward conundrum. Effective trading can generate high returns in a short period but trading without a strategy can lose you a lot of money just as quickly.