Swing trading is an effective trading style that can help you make a lot of money with binary options in a short time. As a new trader, make sure to explore the possibilities of swing trading, or you will waste a lot of money.
What is swing trading?
Every new trader, not just in binary options, has to choose a trading style. In general, every trader has the option of becoming either a trend follower or a swing trader. The basis of both approaches is the trend. The difference between both approaches is that a trend follower is looking to trade in its entirety, while a swing trader is looking to benefit from every single movement from high to low and vice versa.
Some swing traders exclusively invest in a certain type of swings. In an uptrend, for example, a text book swing trader would try to trade a binary option every time the market has created a new high or low. Some swing traders, however, prefer to only invest in movements from high to low or from low to high vice versa. Also, some swing traders do not trade the entire movement, but only a part of it such as the breakout or the drawback.
Advantages of swing trading
Compared to trend following, swing trading has a number of advantages:
1) More trades and higher winning potential
On the same time frame, a swing trading approach will generate significantly more trading opportunities than a trend following trading approach. A trend follower will only have one trading opportunity for every trend.
As a swing trader, however, you will be able to invest once for every high and once for every low in a trade, which can easily accumulate to ten or fifteen investment opportunities for every single trading opportunity you would get with a trend following approach.
2) Shorter movements translate better to binary options
With binary options, finding trends that are worth following with a trend following approach is somewhat difficult. Since binary options feature very short expiration times, most commonly only one hour or less, you would have to use a very short time frame to find a trend worth following.
Assuming that a trend takes at least 20 candlesticks to develop a pattern you can recognize as a trend, you have to use a one minute chart or shorter to find trends you can trade with binary options. On these short time frames, however, market movements are more erratic and patterns are less dependable than on longer time frames. This makes finding a trustworthy trend hard.
With a swing trading approach, on the other hand, you need to find only two or three trustworthy bars. This is easily possible, even on short time frames. Alternatively, you could also switch to a higher time frame, such as 15 minute or 30 minute time frame, where assets move in more reliable patterns.
How to trade swings with binary options
As we alluded to earlier, there is a number of possibilities how you can trade swings with binary options:
1) Trade all swings in a trend
The classical approach to swing trading would be trying to benefit from every movement in a trend. Technical analysis provides you with a vast array of methods to identify when a movement is over, and a new movement is about to be created: Candlestick formations, momentum indicators, resistance and support levels, and many more.
Depending on whether you feel safe to predict the distance the movement will reach, you can use touch options or high / low options to trade the swing.
2) Trade only selected swings
Both the correction and the movement in a trend have certain characteristics that allow you to predict how far they will reach. Some traders, however, find it easier to trade only one of the two movements. If you find that your winning percentage is significantly higher for one of the two movements, you might want to think about following a similar approach.
3) Trade only a part of a swing
Some traders choose to only trade a part of a single swing. This could be the breakout, the reversal, or any other part they feel most comfortable with. If you find it easy to predict the reach of the breakout after the market breaks through the price level of the previous point 2, for example, you might make the most money by focusing on this part of the movement.
4) A combination of the above
To increase their earnings, some traders decide to trade multiple parts of each swings. If you feel comfortable with more than one aspect of swing trading, you could choose a similar trading style and make more money at the same time.