A bull market is one that is on an upward trend, which can often last for many months. When trading binary options, therefore, you will adopt a bullish strategy if you believe the asset you are trading will rise in price. This may be because:
- the price of the asset has been following an upward trend and you expect it to continue
- prices have fallen recently due to a sell off but you view this as profit taking and expect the upward trend to resume.
Buying call options is the simplest and most easily understood strategy. After all, the general principle of investing is that you make money when prices rise.
In the case of binary options, if you adopt a bullish strategy you’ll purchase call options all the time. To be successful, the price of the asset you trade must finish above the strike price at expiration. If it does, you’re in the money but will lose out if the asset price finishes lower.
Peaks and Troughs
You need to be aware, however, that prices don’t go up consistently in a bull market. The price graph doesn’t rise in a straight line and there will be troughs long the way. That’s because, even in the most positive of bull markets and benign economic conditions, doubts will creep in at certain times and traders will sell assets. People will also sell to take profits or for other personal reasons.
Even in a bull market, therefore, prices can drop occasionally and you need to be alert to this. Don’t simply place call options without exception. There will be times when it’s more appropriate to make a put trade or simply withdraw from trading altogether until the upward trend resumes. At that point, you can go back to your bullish strategy and make call trades again.
Researching your Bullish Strategy
For your bullish strategy to be successful, it needs to be based on something solid. Simply expecting a price to rise doesn’t mean it’s going to do so and it’s best to undertake fundamental and technical analysis before doing anything.
If technical analysis shows an upward trend is likely to be continued or a downward trend is due to reverse, a bullish strategy is the one to follow. Similarly, if fundamental analysis of an asset results in a flow of good news, the price is likely to rise. So a call option is the one you should be placing.
Example of a Bullish Strategy
You’ve been following gold but there’s been a recent sell off and the price has dropped significantly. It’s now sitting at $1500 an ounce but you expect the price to start to rise again and so adopt a bullish strategy.
You place a call option for $500 that expires in one hour and has a 75% payout. If you’re correct and the price of gold goes above $1500 at expiration time, you’ll receive your original $500 plus a $375 return. An incorrect prediction means you’ll lose the $500 or at least a good proportion of it, depending on the policy of the broker.