How to Trade Binary Options with the News
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Week after week, I have highlighted the market events to watch for to assist you in your binary options trading. But I want to talk a bit about why the news is the key to putting more money in your pocket when trading binary options.
Trade the news to make money fast
If you trade the news the right way, there is a lot of money to be made. But of course, there are definite drawbacks to trading binary options based off of the various news reports. The main thing is the volatility and this can cause slippage. Slippage is the difference between the price you were hoping to trade and the price the trade actually got executed at.
The key really is to practice, practice and practice. This will help in situations of high volatility. Additionally, it helps to go in with a plan in place. At XForexTrade we always try to give you what to do in the different scenarios of a news report.
For instance, let’s take the case of the US retail sales that was out a little while ago. June retail sales rose at a slower rate than was forecasted by most analysts. Sales grew by a seasonally-adjusted 0.4%, half the 0.8% rate forecasted. This impacted the EUR/USD (popped up) and the USD/JPY (plunged for a while).
The USD/JPY is back to testing the 100 level and this is where one has to be mindful about certain long-term fundamentals. Talking about the retail sales, it also happens to be one of the most trade-worthy news releases. The most watched news actually comes from the US which is no surprise given that the US dollar is a part of all the major currency pairs for one thing. Additionally, the US is also the world’s largest economy.
The other highly volatile US market events are the CPI, the trade balance, the FOMC meeting minutes (they were a pretty big deal last week) and the NFP (the most volatile).
Trade the majors
Another great strategy when trading these mainstream news reports is to pick the majors. You know, the major indices (S&P, Dow, Nasdaq, DAX, Nikkei), major currency pairs (USD/JPY, EUR/USD, GBP/USD, USD/CHF, USD/CAD, AUD/USD) and major commodities (gold, silver, crude oil, copper). The reason for doing this is to ensure that you get the tightest spread (in addition to ensuring that your order goes through in a timely manner).
Spreads naturally tend to widen when market events occur and it will be majors (since they are most liquid) that will give you the tightest spread.
The Directional Bias
Often times, the market doesn’t react the way we think. There is a reason for this and it is called directional bias. Let’s go back to our example of the U. S. retail sales report. So the forecast had it coming in doing better than the last time. But there was a surprising drop. What effect could this have on the S&P 500? One thing that could happen is that the S&P and the Dow falls. But this didn’t happen and both U. S. indices have rallied slightly.
This is because macroeconomic conditions in the U. S. have generally been getting better save a few misses. But this is the key. And in order to make money from binary options trading you’ll have to understand that. Happy binary trading!
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