Although this binary options strategy may seem difficult, trading the news is the most efficient and fastest way to make a profit. Due to this strategy, price action of different underlying assets can be predicted with high precision because the market generally reacts to irritants in a reflexive manner.
The Trading the news strategy relates to fundamental analysis dealing with demand and supply. The point of the strategy is that each trader has its own understanding and algorithm of what to do trading the news.
I will try to explain as simple as possible this difficult process.
Trading the News
The first steps in understanding the strategy
If you want the trading the news strategy to yield really a decent return, you need to:
1. Make a list of all economic indicators that may affect the underlying assets you analyze;
2. Predict economic data before their release;
3. Organize your workplace, that is, you need to install programs and find good web sources of information about the underlying assets you trade.
All news releases that may significantly affect binary options can be grouped based on their subject matter, namely,
Financial news is a source of such data as a balance of trade, key interest rates, GDP, retail price index, unemployment rate etc;
Political news cover events in the economic unions, head of state and ministers’ speeches, agreements between banks’ presidents etc.;
Analytical news means resignations, military operations, international negotiations, developments in the emerging economies, that is, all events that can make a profound impact on the market, or even explode it.
Quite a few traders investing in currencies use trading the news strategy. I know from my past experience that the strategy works well both with currencies and indices. Trading the news shows good results with investment in stock because company stock is quoted in currencies.
A newbie, for whom trading the news may seem difficult, has to learn first how to find really useful information.
A comprehensive source of news is a guarantee of awareness
Undoubtedly, the economic calendar is a major instrument as it provides clear-cut information and time of release of all expected events. One more source is EuroNews, where the latest international news isavailable. As you know, binary options traders mostly use European, American, and Asian shares, currencies, and indices as an underlying asset; therefore, you need to keep track of international news.
Besides, you need to understand what news releases make the most significant impact on the market and consider them. Typically, these are the news releases concerning the United States, Germany, and the UK.
You need to use all features of the economic calendar and every week mark the news releases having the most profound influence on the market.
After you gain experience, you can trade the news automatically because you can quickly make a connection between a country and an underlying security, or a new release and an underlying security.
For instance, if a news release is expected from the United States, you can consider indices like Dow Jones, NASDAQ, S&P 500, currency pairs like GBP/USD, USD/CHF, USD/JPY.
If some data are expected from Germany, you have to pay attention to the European indices like DAX, CAC 40, FTSE 100, or currency pair EUR/USD.
In case news is expected from Australia, New Zeeland, or Canada, it’s worth considering currency pairs like AUD/USD и NZD/USD, USD/CAD also having a direct relationship to the U.S. dollar.
Act to Make a Maximum Profit
Before a news release, I advise you not to open trades that expire immediately after that. You need to keep in mind that at first the price can show false movements as a result of a rush, but then market displays a real reaction.
Below are some examples of a news release impact on underlying assets:
Gross Domestic Product
GDP is the key microeconomic indicator of any country. Economic growth strengthens national currency. For instance, if the U.S. GDP shows rise against its previous value, the exchange rate of the U.S. dollar also may rise.
An unemployment rate shows the labor market situation. A rise in unemployment rate entails a fall in economic activity and hence in the national currency. For instance, if the released data show that unemployment rate grows in Europe, the euro will weaken.
Balance of Trade
This is a difference between exported and imported goods and services, or, in other words, a foreign trade surplus. A positive balance occurs if export exceeds import. This promotes to strengthening national currency. For instance, if the U.S. balance of trade tends to grow, the dollar strengthens. If the balance of trade falls, the American currency decreases as well.
This is one of the most important indicators. If economy adds jobs in nonfarm sector, then GDP and the exchange rate of the national currency rise.
Each region of the world has the news releases which are of great importance.
For example, Australia is impacted by the news releases about its agricultural sector, the United States is influenced greatly by changes in industrial sector, and the ECB’s key interest rate is of paramount importance for Europe.
When and for what period to invest
If your binary options trading is based on the news, you need to pay attention to any changes in the market.
There are two types of the news releases, that is, unexpected and planned. The first are difficult to predict, and the planned are released at scheduled time, and to trade these news releases are much easier;
Any news release has a period during which it can impact the market. A trader has to understand which of them will make a long-term or short-term impact;
It is not uncommon that negative data make a currency rise, and positive releases make the currency plummet. Anyway, if you trade a currency pair, you need to consider both currencies.
Also, you need to understand that news reports of high importance are not released regularly.
News has a period during which it can impact the market, and then other news is released.
For example, there was news about a significant rise in unemployment rate in the United States. This pushed down the dollar. However, 20 minutes later, the minister made a statement that there is a clear-cut plan to resolve this issue within next 3 months. This made the U.S. dollar reach a new high.
Therefore, if you trade the news, I advise you to choose short-term investments. Although in some cases to do vice versa is the best option. For instance, news is released at the end of the day and sets a trend. No other news releases are expected. In that case, you can invest for a period until the closing bell.
The trading the news strategy is an interesting special algorithm. Each underlying asset has its own analytical instruments and news channels. Using news, you will be able to predict the future of an underlying asset not only just for an hour, but for a longer period as well. This will enable you to buy options for a day or longer based on higher reliability of your forecast. If you trade the news, you can also check your analysis using, for instance, moving averages or a trend.