News Trading and Binary Options – Do They Mix?
Almost every trader in the modern financial market has, at some point, considered news trading instead of relying on complicated analytical procedures they did not understand. This actually makes more sense, as their assumption would be that enough people would jump the gun and the market would move in one direction or the other. But is that really a viable binary options strategy?
Technical vs. Fundamental
The thing about trading binary options is that the emphasis is on making right predictions, rather than accurately guessing the extent of the price movement. This is why winning is supposed to be far easier with binary options than any other financial instrument around – and it arguably is. However, most of the top traders came from other branches and are used to the technical aspects, and so they have pretty much imposed the idea that technical analysis is the way to go, as it is more objective and everything that goes with it.
This is why a lot of binary options traders choose a method of trading that they neither understand nor appreciate. The other part actually prefers to base their predictions on market fundamentals and news flow. But is this a viable strategy? Oddly enough, it is – or rather, it can be, provided you take the right steps.
Many Binary Options traders spend a large amount of their time focusing on the technical aspects of trading. As a result they often don’t pay too much attention to the market fundamentals and news flow. The possible exception here is perhaps simply avoiding trading when economic data is due for release.
Timing is the key
As many traders across all branches have demonstrated over the years, it is perfectly possible to cash in on major news releases. By capitalizing on the market rush that usually follows, some of them have been able to make a fortune for themselves, albeit mostly on forex and stock markets. This does not mean the strategy is useless on binary options, though. While it is technically impossible to predict the market itself, predicting the actions of your fellow tradersis anything but.
Believe it or not, it is the market fundamentals that make the prices go up or down, and news outlets are absolutely essential in this regard. This is why literally any news story, no matter how generic and out of focus it may seem to an untrained eye, could prove essential in the grander scheme. That being said, the choice of ‘news’ to follow up on is also quite important in its own right. For example, GDP, Consumer Confidence Index, global politics and Trade Balance-related news are important if your strategy involves global markets in general. The prices of indices and currency pairs are especially susceptible to this kind of releases. On the other hand, individual stocks and commodities are dependent on news that specifically relate to them. So, news stories and reports on individual companies and goods for stocks and commodities, and general news for everything else.
Things to do
First of all, news trading is 90% planning, 1% execution and 9% everything else – binary options are no exception. However, they have one key advantage that makes them shine: planning is far easier here, as there are fewer dimensions to consider (you just need the direction and maybe a target, but only if you like One Touch options). In other respects, things run much like in the breakout strategy – the news release is the trigger, and you either wait for t he move to consolidate or attempt to ride the wave while it lasts. Naturally, this strategy is not successful 100% of the time, but if you find one that is, please let us know. Spoiler alert: there isn’t one!
Something to Consider
In order to maximize your chances of success, you’ll need to plan out every eventuality, long before the actual news announcement comes to pass. Once it happens, and you don’t have a clear, pre-planned course for action, you are automatically too late. In short, what you need is this: a price level at which you plan to enter, the underlying instrument of course, and the expiry time you plan to use. If this were forex or some other kind of market, you’d need a bunch of other stuff as well, such as obligatory confirmation, margins, stop losses etc. This makes binary options ideal for any kind of competent news trading. Just don’t act on impulse and you should be fine. And even if you lose, your losses are capped and contained.