How to Trade Big Market Events in Binary Options
Trading big market events is one of the most productive and fastest strategies in the options market, even if they might seem complex and hard-to-understand at first. Market movements can be accurately calculated given that the market will react to the stimuli. When trading in big market events it is crucial to dive into market research with a particular focus on the supply and demand state of play. The strategies are still based on individual approach and how the trader perceives the algorithmic calculations and the market, which means that a lot of depends on your trading skills and market knowledge.
Appropriate Tools to Follow the Market
What resources traders use is of crucial importance in order to earn profits. The economic calendar is the first go-to place where you can find hints when to expect the event and other key information such as price movements. Bloomberg and Reuters are also recommended sources since they are reliable and accurate.
In order to predict which economic indicators are going to change, you have to develop a deep understanding of the market indicators themselves and what could influence the price values. The best way to develop this trading skill is to follow important economic news which reveals information about interest rates (whether they go up or down), inflation, the status of the labor market. also, do not miss out on reading reports on the largest companies and their profitability and unprofitability. Combine all the sources to get a full picture of the upcoming market events and what you can expect.
Filter Your Information
It is impossible to follow all news, so you need to make a distinction between useful news and useless news. Just stick to the news that actually has a major impact on the market, the ones mentioned above (inflation, interest rates, also GDP, PMI, etc.). As a trader, you should find time to peek in the economic calendar at least once a week to stay in the loop with the latest developments and events. Also, the biggest market changes are usually linked to news coming from the most powerful countries, like the USA, Eurozone country, and Japan. Make sure to follow the press releases from these major actors and you will notice with time how these news influence the binary options market.
Big events trading is strongly linked to a news release, so you should follow the currencies of the country which is about to reveal important economic data. For example, if news from USA is expected that day, you should focus on currency pairs which are paired with the USD. Expect the USD + other currency pairs to fluctuate up and down around the time of news release and afterward.
There is no rush to place trades before news have been released if they expire after the release, but it is even better to patiently wait in order not to be misled by the false price movements which tend to appear in the first seconds due to dense market traffic, but also stay alert since the real prices will be displayed immediately afterwards.
Currency Trading during Big Market Events
If you think you are ready to enter trades based on big news releases, then you should be prepared to read market changes accurately. False predictions are a part of trading of course, but try to minimize losing trades by accurate event reading.
Planned and expected news should not be a problem since they are scheduled and you know exactly when they will happen. On the other hand, there is also unexpected news which is not easy to predict.
As a trader, you have probably already noticed that bad news mean usually that the value of a currency will rise, and good news causes the opposite, i.e. the currency drops in value. Still, this does not guarantee anything, since you are trading pairs, which makes currencies of the same pair co-dependent on the market and you have to take into account the values and movements of both currencies.
Another important feature in trading on big events is the ability to assess how serious the news are. You have to be able to predict whether the news trigger short-term (minute and hour long) changes in the market or are they going to affect the market on a long-term basis.
Perception of News Release
As a binary options trader, you have to understand that the market is fast as a lightning. All events come with an expiry date and other events will happen that make the initial news secondary. An influential news is an occasional event which have a short shelf-life.
Imagine the following situation: Great Britain announces a drop in exports which immediately reflects on the GBP and it starts to decrease in value. After several hours, the government announces that it is going to address this problem which should be solved in the following three months, which results in GBP rise again, surpassing even its former value. This is how crazy the market can get and traders should be aware that the economy rests on numerous inter-linked factors which represent the risk the trader is willing to enter.
Binary options are great because they offer short expiry periods which can be used to secure profits when the market is behaving like in our British export example.
Trading on big events relies on many factors and traders should use a set of different skills and various news sources to be able to anticipate price movements. With the right broker on their side, they will be able to crack the code to trading big market events.
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References and Further Reading:
- Trading Fast and Slow: Security Market Events in Real Time (Joel Hasbrouck)
- Between Mission and Market: Events and Images in a Melanesian Society (Eric Hirsch)
- The Impact of the Disclosure of the Environmental Effects of Organizational Behavior on the Market (Ahmed Belkaoui)
- Market Reaction to Events Surrounding the Sarbanes‐Oxley Act of 2002 and Earnings Management (Haidan Li, Morton Pincus, Irvine Sonja, Olhoft Rego)
- Liquidity and Market Structure (SANFORD J. GROSSMAN, MERTON H. MILLER)