How to choose an Option Type

Finding the right option type is a difficult task. To help you pick the right option type without having to test all them and potentially losing a lot of money, we have created a guide, How to choose an Option Type,  that will help you to trade successfully from the start.

How to choose an option type: The guide

Most new traders either think that choosing the right binary options type will be easy or fail to understand the importance of the task. The truth is that picking the right option type is crucial for your future success. By making the right decision on how to choose an option type, you will set yourself up for a great trading career, but making a bad decision, you will make sure that you are always one step behind the market.

To come out on the right side of this mechanism, consider these points when choosing an option type:

Continue reading How to choose an Option Type below the table…

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How risky is the option type?

Different binary option types vary greatly in the risk that they involve. When you invest in a high / low option, for example, you only have to predict which direction the market will move in. With one touch options, however, you also have to predict whether the market will move far enough to reach the option’s target price.

While one touch options make up for the more difficult prediction by offering a higher payout, they nonetheless require you to make a prediction that involves more risk. Consequently, you will win a lower percentage of your trades when you trade one touch options than you would win with high / low options.

In fact, the simple nature of high / low options means that you would even win 50 percent of your trades if you simply guessed the direction the market will move in. Under these conditions, you are highly unlikely to quickly lose all of your money. With one touch options, this risk is more real.

Depending on your personality, either option is a better fit for you. Some traders find it hard to stand the uncertainty one touch options involve and prefer the safe haven of high / low options. Other traders consider high / low options boring and cherish the excitement of one touch options.

To become a successful trader, it is important that your binary option type matches your personality well. If you choose the wrong binary options type, you will soon run into psychological difficulties. Either you will feel bored by the slow-and-steady approach of high / low options, or you will lose sleep over the risk other binary option types include.

Either way, these negative emotions will influence your trading. To calm your mind, you will start to neglect your trading strategy and make bad decisions, thereby losing money.

To avoid this problem, it is important that you do not suppress your feelings. Choose the binary option type that is in line with your personality, and you will create the best trading conditions that you can.

Psychological stress level

The different risk of binary option types has wide-reaching psychological consequences. To understand this point, think of the very different mindset that you will be in when you trade high / low options and one touch options:

When you invest in high / low options, you can win about 70 percent of your trades, which means that you will be right most of the time. Every losing trade will be a footnote to the almost three winning trades that will make up for it. You can feel confident in your ability to predict the market, and you can invest in every single option knowing that you are likely to win it.

When you invest in one touch options, you can win about 30 percent of your trades. While this is still enough to make you money, it means that you will be wrong most of the time. For every winning option you will lose almost three others, and you will regularly have to endure long losing streaks. When you invest in an option, you know that you are likely to lose it.

Both mindsets are fundamentally different, and the mindset that comes with one touch options certainly involves a much higher psychological stress level. When choosing a binary option type, think about whether you can bare this stress level. Some traders even find a high stress level attractive. Whatever you think about this topic, act accordingly.

Your strategy

Some strategies predetermine the binary options type you have to use to trade them. The straddle strategy, for example, requires you to trade boundary options. While most strategies allow you to choose any option type you want, you have to make sure that you choose a binary options type that works well with your strategy.

When trading breakouts, trends, or candlestick formations, however, you can use any binary options type you like.

How to choose an Option Type
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