Most Binary Options Traders are working with technical analysis when it comes to securing a long-term edge in their “trade” and they more or less ignore market fundamentals. The bias is indeed obvious: most binary option traders only incorporate fundamentals into their trading to the extent of simply staying away from the action when economic news are due to be released. While in itself this approach is indeed a healthy one considering a trader who is overly reliant on the technical aspects of strategy beyond that it results in a plethora of missed – and potentially good – trading/profit-reaping opportunities.
Those trading indices, Forex, commodities or stocks have long resorted to news trading to secure an edge and indeed there exist traders out there who have turned this approach into a sort of art-form. Binary Options Traders can adopt similar strategies, too and they also can be successful at news trading.
The first step is to find a tool that will help you make heads and tails of the news-flow. There are indeed trading tools out there that will organize the data creating a virtual economic news calendar which will have the importance of various news-releases graphically illustrated together with the actual previous and forecast values of the variables involved. Such a tool is a must for everyone looking to trade the news.
As it’s usually the case in trading there aren’t any rules etched in stone when it comes to trading the news with Binary Options. There are however a number of measures you can adopt to radically Impact your chances of success. There’s nothing particularly deep or technical about these “strategies” either. They’re all quite straightforward and depending on the sort of news they’re aimed at exploiting quite self-explanatory as well.
One of the simplest ways to trade the news is through the breakout strategy. This approach requires quite a bit of pre-planning but its execution is simple and straightforward as are the signals that call for its application. This strategy should only be used with news which are likely to elicit a highly predictable movement in the price of an underlying asset. With currency pairs announcements regarding the increasing or decreasing of the interest rate are potentially such news. Usually when the interest rate is raised the targeted currency gains. When it’s lowered it drops. In addition to that you can of course analyze the ever increasing highs and lows as well as the increasing moving averages associated with the asset price to confirm the general trend (which in this case would be an uptrend). The critical points of this strategy are the entry points (which is when the trader actually places the Put/Call trade) and of course the expiry. In a hypothetical scenario the entry signal can be the actual announcement. The trader may also wait to see what sort of effect the announcement has entering shortly afterward. The expiry time can be anything from 1 hour to a day. Two options can in fact be bought: one with a one hour and the other with a one day expiry. This strategy calls for simple Put/Call contracts.
Most of the time though the problem with news trading is that while one knows a certain announcement will indeed produce a massive swing in the price of an asset it isn’t clear in which direction the swing will occur. An announcement on the part of the US Federal Open Market Committee (FOMC) is a good potential example in this respect. Such a situation obviously calls for a range trade with an “Outside” Option purchased. This way regardless of whether the swing happens upward or downward as long as the price ends up outside of the range the trade is a winner. This method is called trading on volatility because that is indeed exactly what it does.