We have covered several strategies that are great for beginners in binary options. Since all of these strategies cover technical analysis, let us now check how you can use economic news for your profit but you have to now from what sources to read it. We know that binary options is still new to people and therefore is considered as volatile investment. Even if it is so, rules of economics apply even here. For example, if in Middle East there is something going on, it will impact the oil and even US dollars aswell as companies that operate with that region. Another example can be, if there is a natural disaster in South America which i hope does not happen, it will change the price of coffee to a higher value simply because the supply is not steady. Because of so many possible scenarios, you have to look at the news.
As we know, with binary options, if we simplfy them, we have to choose only beetwen two options. One option is, if the asset will increase over a certain period of time and second option is, if the price of the specified asset will decrease in certain period of time. That is why it is good to keep an eye also on the news. You should always have open some trusted finance source of news since you never know when something new will come in.
WHAT ARE GOOD SOURCES OF NEWS?
It is true that there is no such thing as too much when it comes to this but eventually you will have to pick few websites that you like otherwise you can read news your whole day and not trade. I would always suggest to read news and then check also technical analysis of that asset. If technical does not meet the fundamental as we call this part of news analysis, then i would not trade yet since technical analysis on chart is what is important and what you trade.
I would suggest that you start reading Bloomberg, The Economist and of course Wall Street Journal. These website are very well known in the industry along with Yahoo finance and several others. They are in constant motion as you and they even offer you analysis on what is going on, on the market. If you are a beginner i would suggest that you make a decision and only follow what you want to trade, so niche sites are also great idea since they will ofer you news based on what you want. For example, if you are into currencies then you must bookmark and check investing.com and also FXempire which is a great source for currency pairs and updates. Another example, if you want to trade oil, you have to be up to date on what is going on and therefore it is a must to read oil & gas journal.
Since majority of binary options traders like to trade short time frames there is no need for them what are trends in finance for long term therefore it is a must to follow news. Since price of certain asset can change in a matter of seconds and minutes based on news and hw powerufll it is. So if you will not follow news, you will be blind and will not be able to predict what can happen next.
Volatility is a word which means measuring a financial asset movement over period of time. In this measure, you do not take the direction of the asset but simply, only the movement itself. Volatility can for some traders be good but for others even bad and they can fear it. But it is good that you are aware of what is going on. Currency pairs that are more volatile means they move around more.
WHAT YOU WILL LEARN HERE:
- What is volatility?
- How to measure it?
- Should you be afraid of volatility?
- Why is volatility good for binary options?
- What are most volatile currency pairs?
- How is the best to trade it?
Now you have a better perspective on what volatility is but it can also mean for some traders that the market is becoming more active so it has different meaning for different traders. Since in binary options it is all about movements, higher volatility is better. You can see here with what you can measure volatility:
- Bolinger Bands
- Average True Range
- Elder Rays
- Chaikin Volatility Oscillator
SHOULD YOU BE AFRAID OF VOLATILITY?
As we said at the beginning, there are traders that actually are not comfortable with volatility since it really can be unpredictable. They are afraid because with one swing of a price, they can be in profit while the price can turn in other way aswell and they are in loss really fast. That is why, there is a higher chance to lose your account this way. Trading it in binary options is different since it is based on expiry time and therefore you can not be influnced by this huge movements in the middle of the trade since it all just depends how it will be at the end of the trade. That is why it is much easier to trade such volatility with them. But there is another problem which can happen even in binary options and volatility, that is, you can get fals indicator to enter the trade but with practice you can learn this aswell.
WHY IS VOLATILITY GOOD FOR BINARY OPTIONS?
We said that volatility is measure by movement and that is also the reason why is it good for binary options. We trade binary options based on movements and assets that are highly volatile means that they will also move much more and this is good for everyone that is trading binary options. You are probably asking yourself how can this be good for trading binary options and here is why. One of the reasons is becuase you want your asset to be moving since you want clear definition after exipration time that it will be below or above your strike price. The worst is that you have to watch your trading asset moving always around your strike price. Another reason is similiar but different and it is the amount of the movement. Meaning for example, you probably want your asset to move far in the money zone. That can only happen with volatility.
MOST VOLATILE CURRENCY PAIRS
We have six currency pairs that are the most traded and they are: AUD/USD, EUR/USD, GBP/ USD, USD/CAD, USD/CHF, USD/JPY. All of them have different level of volatility and what is the best pair to trade depends on the trader itself. You have to feel comfortable with trading and do not trade all of them at once. It is also good for a beginner to first learn and feel comfortable trading a pair that is less volatile and then move on. This is just to keep money on the safe place but you can always try it out in your demo account.
WHAT IS THE BEST WAY TO TRADE THEM?
You can apply same strategy you are using for less volatile assets even on high volatile ones but you really have to be alert on what is going on in the market and have bigger picture in front of yourself, meaning you ahve to look at different time frames. Because the difference is they are more active, therefore you can get signals that is not even there and can be faked. Follow the trend and i would suggest to look for breakouts or breakdowns. We have covered strategies for beginners which can be applied even here, that are MACD, TSF and so on, learn more about them here. Other thing that can work well with this can be fibonacci retracement. High volatility can be used for trading binary options with 60 seconds expiry time but always be cautious.
As you can see, volatility can be a good thing since you can make big movements but there is always another side to that. That is why you have to learn and get knowledge so you can be better trader. Get in place proper technical indicators which will singalize you when to enter the trade and profit from them. Since there is more volatility in the currency pairs, mens there is also more opportunities that you can take advantage of.
May the force be with you. But we will not do any mind tricks to the market, only measure the momentum of the price. This indicator was made by Alexander Elder who also wrote a book called Trading for a living which is recommended for a new guy. This indicator is actually an oscillator which is trending in a boundary over and also under zero. It is using movement of price and volume to determine momentum in the current market you are trading in. Alexander who invented this indicator believes that three things are important for specific asset movement, which are: direction of the asset, volume of trading and extent. Now, this indicator is measuring this power with which as we said you can determine trend and also reversals.
WHAT YOU WILL LEARN HERE:
- What is force indicator?
- Download force indicator
- How to use it?
- Why is it bad and why good?
Download Force Indicator Here
HOW DOES FORCE INDICATOR WORKS?
Ok, so let us take a closer look at how does this work. It is actually simple to use. First thing you need to do is to get closing price of specific asset from day before and substract it from current one. With this, you get direction and also extent. When you get the number, you have to multiply it with the volume to get F1. Nex thing we have to make oscillator plots that will be moving average of results. Alexander is suggesting to start with 13 exponential moving averages. When you will get familiar with the indicator, you can adjust it for yourself. When you have days that have small movements and small volume means that the force is weak. When you have days with big movements and high volume,means you have strong force. You can see the force is showing on onscillator this way:
WHY IS IT BAD AND WHY GOOD?
To be honest it just needs some time for a new trader to get used to it, otherwise it is not bad at all. Of course it is not 100% and can happen it can fake it, so you can make sure of that. Beside that, it uses good information for displaying indicator from which you can get signals for trading. You can use it reliably as trend support and it is good to check with multiple time frames. It is also good if you want to determine the top.
It is overally a great tool which is great for a beginner to start with and learn for future. Indicator can also provide you insight on volatility of certain asset. You can add it also to your current strategy as momentum oscillator. Just remember when your chosen asset is quiet and lazy the line will be flat and when the asset will be high in volume or daily range then you will see that also in force index.
It is quite possible to say that this tool could be the most useful indicator for trading binary options. It is actually following trend indicator which is focusing on multiple linear model and predicting the price. It is basicly a tool with which you can predict where the price will go or be over certain period of time. It uses different type of analysis that is why it is useful when it comes to predicting future value. Since it has few similarities with MACD(Moving Averages) it is often called as Moving Linear Regression Indicator. It is more proper name when you see the tool since it acts similiar as MACD does. The tool is usually a standard with most of chart packages.
HOW TO USE IT?
First if you do not have it yet, i would suggest to download it and install it in your software, preferablly metatrader 4.
Download Time Series Forecast Indocator here
Add the indicator to the rest of the indicators and select it from the menu. Afterwards it reads as moving average. But the formula behind this tool is quite more complex. When you will see the price is above the line of this indicator you will know it is an uptrending market and if it is below you will know it is a downtrending market. I would suggest to confirm the signal of this indicator with more then just one time frame just to be on a safe side.
WHY IS IT BAD AND WHY GOOD
Problem i see is only that you need to set it up at first to give you good signals, this is something you need to figure out on your own, i would say to test it out first at demo and then apply to real account. But after the setup is done and you feel comfortable with it, it can be the best indicator for a beginner regarding binary options. It is an upgraded version of MACD and gives you more accurate results when it is set up. To get again into more detail as we said, it combines multiple linear regression lines and then it combines them to just one line. Test it and you will see it is great.
As always, no tool is perfect and 100% so even if it is great you have to start using it with caution. Get comfortable with it is a must before you start trading it in real market otherwise you will have problems and lose money and i know you do not want that. After all, you want to learn this to make a nice profit so you can enjoy.
MACD(Moving Average Convergence Divergence) tool was developed in seventies by Gerald Appel. It can help you identify trading opportunities by seeing how strong a move is and also give us indication to which direction we should trade. To simple tell it, it will show you where the price is going and also how strong it is. Tool is made from two moving averages indicators and histogram that gives us distance beetwen these two moving averages. With this we can determine how strong the move is. When you see on the histogram that the lines are getting smaller means that current trend or move is slowing down and reversal can happen. While on the other side if it gets bigger means it is a strong move and it is going to continue this way.
WHAT YOU WILL LEARN HERE:
- What is MACD?
- Why is it bad and why good?
- How to use MACD for trading?
WHY IS IT BAD AND WHY GOOD?
Since it is formed with two moving averages which you may know or not are lagging and also there comes a time when you can see fast price move which is strong and then immediate reverse. Meaning it can not go along because price is too fast. But that does not mean you should give up and it is not a good tool to use. You have to embrace the slowlines and use it for your advantage like in this example, where you are in the trade which has strong trend but is going to retrace. Now, if you would have use fast tool to indicate it would definitely get you out and told you it is moving out of the position while MACD lines will just go close and told you that it is getting weak. Sometimes you can see such fake outs on the market. This can only tell you that there is no perfect tool.
HOW TO USE MACD FOR TRADING?
Let us take a look at particular example and how you use this tool in your advantage. When a cross happens beetwen moving averages it signalizes you for a trade. It just depends in what direction. So if a uptrend cross happens, you should do a CALL trade and if it is a downtrend crossing then you must trade it with a PUT. This is how it looks on the chart:
You can histogram at bottom and also the moving averages. Histogram is the green thing that is like bars and sometimes it almost dissapperas, this is when it comes to cross over of the moving average lines. Let us take a look at the numbers you see, they represent all the cross overs that are made and can be tradeable in the case. Keep in mind this is carefully picked for purpose to show you how ti can look. It is not always that good looking since it can even fake sometimes. When you are in the trade and you see a cross in the direction that is not your trade it is tiem to close the trade.
Leonardo Pisano Bigollo is the man who introduced us to fibonacci sequence. First i have to tell you that he introduced to us the numbers as we know them today which are very obvious: 0, 1, 2, 3, 4, 5, 6, 7, 8, 9. We use this in every day life. He did not invent these but he did invent something called fibonacci sequence where each number is basicly the sum of two numbers that preceed it, example: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,… So what does this numbers have to do with trading. Well based on this numbers we have fibonacci retracement tool which identifies levels where is the end of support or resistance. To get this, you just have to connect high and low of a swing. You can see a quick example here:
WHAT YOU WILL LEARN HERE:
- What is fibonacci tool
- Why is it good and why bad?
- How to use fibonacci tool?
WHY IS IT GOOD AND WHY BAD?
As we said at the end, you must identify the swing first in order to see the fibonacci levels. Problem is that we all see differently where the low and high of a swing can be. Meaning, that someone will fail since it will not show him the correct levels while the trader will think it is correct. That is why it is important to use it correctly otherwise it has no use.
On the other hand, the fibonacci tool is definitely one of most used tools when it comes to technical analysis. Meaning that if enough of traders around the world uses the tool at once, it becomes self fullfilling because all traders would look at same levels and would make similiar decision and similiar trade at once which will then move market into the direction.
HOW TO USE IT?
As we said, first thing you need to do is, identify the swing and its high and low and connect them both with a tool. You have to know that swing high is where you have atleast two candle bars with lower highs on each of the sides. Swing low on the other hand is vice versa meaning that you need to have two bars with high lows on both side. Connect these two with the tool as we said and the levels are going to appear on the chart. After that, you trade accordingly.
This tool is most useful in a trending market because for example it will find support in an uptrend and it will go higher from there on. This is nicely visible also from the picture example where it tested the support and bounced and then got higher. It is a very good tool to use it on daily basis but i would not advice to rely just on it. Try to rely on more then one and find the ones that suit you best.