Trading Strategies: Binary and Zero Cost
In this video, Roger Hawes, an Analyst from the Corellian Academy discusses the different types of trading strategies and emphasizes the importance of avoiding one-dimensional trading.
Trading strategies are tools used to manage risk levels and expectations for specific trade ideas. While there is a myriad of trading strategies available, Hawes focuses on two trading strategies namely Binary Trading and Zero-Cost* Trading.
Binary Trading is a simple method that can be used across various timeframes. Its aim is to make a profit from moving markets, by buying or selling at a single entry point, setting a stop loss at a defined level, and establishing a take profit level. This method requires discipline as the trades are pure win or lose, and emotions may play a big part as volatility increases.
The zero-cost trading strategy, on the other hand, aims to improve the average entry level of the original trade. This is done through buying or selling at an initial entry point, setting a stop loss, and taking profit for a portion of the position. The remaining position is adjusted to break even or near it.
Accordingly, this method allows for minimal or no loss even if the market moves against the trade. As such, it instills confidence and encourages patience. However, traders should take into consideration that this strategy requires sacrificing some potential upside if the market moves strongly in one direction.
This video also provides an illustration of a situation where one desires to go long on natural gas (NG) but fails to catch the initial upward momentum, thus seeking a suitable entry opportunity. In the example, we see that a zero-cost trading strategy can increase trading confidence by providing traders with a comfortable and risk-reducing trading environment, enabling traders to manage emotions and possibly achieve break-even or profit regardless of whether the market initially moves against their position, so that losses can be minimized.
In conclusion, both methods are used to illustrate how each strategy affects the execution of trades and risk management, and overall, trading strategies can help traders avoid one-dimensional approaches and improve their overall trading performance.
*Trading CFDs will not be zero cost.
