EducationTechnical

IQ Option Trading strategy

So you have set up your new trading account, great, now you may start thinking, well where shall I begin? How do I trade? And what do I need to start considering the ensure I am constantly protecting my capital to maximize my gain and limit my losses?

Well, grab a pen and a pad and pack a lunch because this will give you something to think about. Perhaps you got into the world of trading for fun, maybe you got started to setup a new stream of income, or maybe you are looking at this as a potential career. After all, hedge funds and investment banks have been doing this for yours with your money, the only difference is now you won’t be getting a small crumb from the pie, no now you are in control and your hard-earned cash is no longer someone else’s gain, it’s yours.

But how did they do it? And what can I do today to get a business model that’s suitable for me?

By asking these questions we start to see the basics of the foundations that we must consider in order to find a strategy that matches our lifestyle and objectives.

While IQ Option has provided traders with a leading-edge platform and a huge library of assets to trade on as well as up to date information, we must now consider how we can use these assets classes to gain from the market,

So, let’s look at what asset classes are available and how these might be used. Below we can see on our platform, the complete library to trade from

Right away we can look at Options, now IQ Option offers and interesting choice in options, as we have binary options and digital options, these can either be traded separately or used in combination to minimize risk and maximize profits, but to do this we must consider how each trades and how it would be useful to use together so lets imagine that you decide to buy a call option in EUR/USD now if you only trade the binary option in /EUR/USD then for the option to expire in the money and for you to be profitable your call option must expire above your strike price, at 5 min + we can see there is 100% profitability, so if we invest $1000, we will either earn or lose $1000, so it’s a pretty straight forward trade, but now if you wanted to hedge your trade (which roughly refers to selling and buying) then you could choose to use the digital options to trade lower on EUR/USD or against your binary option trade, why would you do it? Because if you placed an order for EUR/USD to go lower and used $500, while your binary option call option (price going up) is worth $1000 with 100% return then you could potentially be profitable while protecting your investment because if your binary option trade was profitable, then your digital option would lose so you would lose $500 but in the binary option you would gain $1000, so your profit minus your loss means that you will net $500, so the total trade would net you a profit of $500 and if you did that 3 times a week this would earn you a weekly profit of $1500.

This strategy is known of course as hedging and while hedging can be profitable it doesn’t also slow the rate of growth at you will incur losses while your also making gains, if you were a day trader on the other hand, and you only traded one of the two, lets say binary options, then for the same 3 trades you would potentially earn $3000 in the same week. So this analysis forces you to consider, do you prefer to make less and take less risk, or do you prefer to risk a little more and also make a lot more.

There are many types of traders:

  1. Hedgers
  2. Scalpers
  3. Day traders
  4. Position traders

The key difference between these (except for hedgers) is the time frame, usually scalpers operate on a short term basis, taking traders of expiry or for a duration of 1-5 minutes and they may conduct a large number of trades in a day roughly seeking between 5-30 pips. The day traders on the other hand tend to seek opportunities over the course of the day trading on timeframes of 15min to 1 hour and may conduct only a small number of trades every day seeking 30 to 60 pips. Now, position traders on the other hand, are long term traders, these traders look to hold positions over 1-3 months, now you may be thinking, well why would I wait that long? Because these traders are not looking for quick profits, they are seeking large profits over time as they may not have all the time to sit and trade all day, for these traders while some may trade forex, most consider long term trades in stocks or commodities or indeed ETF’s.

The reason behind this is that they can maximise their opportunity, but trading with very little risk and allowing the market to move over time they might take a trade of $1000 dollars and in two to three months earn over $10,000 as they allow for long term large moves in the market, so this is beneficial if your seeking to maximise your opportunity and you don’t mind waiting to get the best you can out of your investment.

But of course this one strategy alone may not be for everyone, that’s why some traders tend to pick pieces of each strategy and try to shape an idea that would allow them to maximise their opportunity while keeping their risk as low as possible to meet their objectives.

An example of this could be simply considering position trading with commodities and stocks and day trading with forex. So how old that look like, let me share the idea, let’s assume:

You believe that the interest rates in the USA are going up, since higher interest rates mean a stronger currency it is then assumed that EUR/USD is going down because as the dollar strengthens, then the Euro against the Dollar will weaken, so what does that mean for commodities, well gold for example tends to do the opposite of the Dollar so a strong does may mean weakness for gold, so if we traded gold to go lower (selling) then we could hold that position for the long term, and if higher interest rates means it makes things more expensive for companies (as some companies that have borrowed money have to pay back at higher interest, so the companies profits might be lower) so the companies stock price could decline over time, so then you could have another long term trade on that company, but in the mean time until those trades pay off you want short term trades in EUR/USD then you can trade this pair to go lower at the same time your potentially making money on the day your other positions are still working for you while you take profit so you can continue to earn even while you sleep and if your trades from day trading were not profitable then perhaps your long term positions will be and therefore they cover your losses.

So, we can start to get an idea of how these would work and how they can be used in combination and that by using a combination there is a bit of hedging involved in doing so.

When we have looked into the type of trader we will be and what we want we then must consider, which type of analysis we do to get our trades, because its great to see how this would work but how do we find these trades?

Well, on this topic we can also find a way to either do one type of analysis or a combination of both. The two types of analysis are fundamental and technical analysis. The fundamental analysis is all about looking at the news, and economic events taking place in the market, and understanding how these affect a country or a company, it can be fun to learn how this works even if you have never experienced doing so, because you can start to understand how everything around you works.

But there is also the option of technical analysis, this means you like to only look at the charts and using one or a variety of indicators as well as price action, like looking for levels of support or resistance in price. Then this means you need to know less about economics and more about how prices trade, understanding when using indicators if an asset is over bought or oversold can help you look for either a buy or sell opportunity, or looking for levels of support or resistance in price action could help you find opportunities to buy or sell, and again these could be used together, so you could use an RSI indicator on the EUR/USD chart to see if it is over bought or over sold and then at the same time see if EUR/USD is at a level of support or resistance.

Lets say that EUR/USD is at a level of support and the RSI indicator is showing that it is oversold, so if the asset is over sold then it could potential go up as there have been too many sellers, and if they price is at support this may mean price is starting to be supported by buyers, then this could be a great buying opportunity for the EUR/USD

As you can see here the, RSI (indicator at the bottom of the chart) is slowly moving towards the 20 level, which means that price is oversold, if it went to 80 it would mean it was overbought, and at the same time the blue line above on the chart is showing the level of support in price action, so at the same time the chart is showing the price is over sold and the candle sticks are sitting on a level of support, we could potential buy EUR/USD at level, and as you can see after our entry the price did in fact go up.

Now looking at this trade, if you were a scalper you might now consider having another position because if you notice after price went up from our buying position, after that the RSI indicators started indicating that the price is over bought as it gets closer to the 80 level and price action at the same time starts to sit on the level of resistance, let me show you below:

As you can see the trade as now flipped around, so if you would be a scalper, then this would be the second opportunity, and this could continue all day long as you see after that price went again to over sold and the price chart shows the candle sticks back at the old level of support.

So I believe that with this you have a lot of information to consider and you can start to build a picture as to what you must consider, do not feel overwhelmed at this point, because just as everything this is now your business and there is no perfect business or strategy, we make mistakes and we learn, that is how we over come and succeed, but constantly learning and understanding what works for us we begin to find a strategy that matches our personality and can be good enough to hit our targets and every week the goal is to always improve on this and perhaps consider keep notes of your lessons along the way to fully understand what lessons came from the week so on the weekend we can look at them and start to fix them, because if we don’t know what we are doing wrong we can not start to fix the problems in the strategy.

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