Buying when everyone is selling/selling when everyone is buying
Binary options trading is not the easiest thing to do. Choosing brokers, figuring out your strategy – this can all be challenging. So before taking any decision on your trading, you should definitely consider both technical and strategical factors, just as you should keep in mind microeconomic analysis.
Many factors can influence markets and its movements. Natural disasters, election results or even some minor economic changes can initiate major changes.
Everything that we have mentioned and more creates an environment where markets are moving and the goal of traders is to search for opportunities within those markets. For instance, buy at a lower value and sell with a higher price or just sell at a higher price and close the position at a lower level. There is alway the same end goal: profit.
When trading binary options, buying a call option means that you believe a price to move up and buying a put option means you think it will move down after you purchase it.
The trading environment is very specific since from all the trading markets. In the FX, for example, is the most popular product to trade in binary options. The retail component consists of just 5% of the entire trading market. The rest consists of big institutional investors and major market players such as commercial and national banks.
From this 5%, it is quite competitive and you need to have a lot of knowledge and skills to make sure you succeed. How to make sure you will?
One sure thing you can do differently from the rest of the new traders is to trade with indicators.
Indicators (and oscillators in particular) show the so-called oversold and overbought levels. And still, while everyone in the entire market knows when a particular indicator shows a currency pair is overbought or oversold, many traders are losing money.
The solution to this puzzle is trying to search for a strength in overbought levels and a weak point in oversold levels because that’s when a market move quicker and more aggressively.
To have a chance for an option to expire when you in overbought levels are much higher than if you buy in oversold ones. This is because markets have this trend to stay divergent and often irrational more often that a trader can expect. Additionally, at that time the trading strategy will be affected because you are on the wrong side of the market trading and will have to experience many major mistakes. This will just lead to losses in the end.
To oppose this system is at times difficult when trading, especially if your trading is based on the Forex markets as you main financial instrument. It is one thing to know and a completely different one to execute. But, generally, that should be your aim.
So now that we got that covered, we should also mention how to be a contrarian while going through withFX-related trading? We can find this answer if we turn to basic financial management rules that we can use from two perspectives: size and time.
What you need to do is to look for a market to enter when overbought and oversold territories are analyzed with oscillators instead of buying in oversold territory. This will give you a wider perspective and the ability to identify a strong trend.
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References and Further Reading:
- Timber supply from private nonindustrial forests: a microeconomic analysis of landowner behavior (Binkley, Clark Shepard)
- A microeconomic analysis of the timing of births (Alessandro Cigno)
- MICROECONOMIC THEORY
- LAPAROSCOPIC DONOR NEPHRECTOMY INCREASES THE SUPPLY OF LIVING DONOR KIDNEYS: A Center-Specific Microeconomic Analysis (Kuo, Paul)
- Mortgage Borrower Repayment Behavior: A Microeconomic Analysis with Canadian Adjustable Rate Mortgage Data (Peter M. Zorn, Michael J. Lea)