Volatility and Binary Options

If you are familiar with the financial world, you have probably heard many times about volatility. For those of you who do not know what volatility is, we must begin by saying volatility represents the degree of variation of a trading price over time.


Source: https://flextrade.com

We say volatility is high when price variations are high and it is low when price variations are low. Volatility is like water for traders, they need volatility to make money.

Warren Buffett, one of the greatest investors of all time once said: “If the market would be balanced and stable I would be a poor man”. So, he acknowledges the importance of volatility in the investing sector.

Does volatility have an influence on binary options traders?

Of course it does. Even though as a binary options trader you are not trading the underlying instrument, binary options are influenced by the actual assets they represent.

If you are trading binary options on the EURUSD and the pair is very volatile, your trading activity will be influenced by that.

How to protect and benefit from volatile environments?

Volatile periods could be profitable but bad for some traders at the same time. And that is because most of the traders do not have a strategy designed specifically to that kind of environment. You should place your stop losses at a distant place, trade lower volumes, place binary options around critical support/resistance areas, monitor your account constantly etc.

Trading in volatile conditions is tough and you will need to dedicate more time than usual if you expect returns.

Also, you need to understand the behavior of each asset you are wanting to trade. Look how the price had fluctuated in the past, see the average weekly range, monthly range in order to see how volatile that instrument had been in the past.

Information can save you when trading binary options, so make sure to constantly study and learn new things, improve your current methodology and develop that mindset which can lead you to success. Remember that volatility could be your best friend and knock you down each time you are overconfident.

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