News Trading Strategy: Knowing What to Trade
Trading the news in binary options entails having to know what assets to trade and when to trade them. The easiest way to do this is to follow an economic calendar that will show the most important and influential economic releases and which currency assets will be affected directly and also to what degree.
If you’re a beginner is it advised that you only trade the associated currency against the US dollar. For example, if the release is about Interest rates in Canada and will affect the Canadian dollar than you should be watching the CADUSD. This approach is quite straightforward but in order to time your trades well you will need to refer to technical charts for entry points and have your chart window open while you wait for the news release.
Depending on the time frame you will be trading you can set your charts to 5 or 15 minutes candles. If the news release is very important you are likely to see a lot of movement up and down few seconds before the release. This is when investors try to speculate but right after the release you are likely to see a forming trend in one direction that may last a few minutes before it tries to correct itself. When it does it is likely to touch the moving avererage and then it will follow the news trend again.
Our advice is to take time and study what really happens with the price action during an important news release. As you do please watch the moving avarage and how it affects the trend. Timing is everything and in trading it seperates losers from winners. This is more true for binary options than any other type of trading because if your timing is off than you will lose 100% of your investment in spot margin if your exits are defined you may lose a lot less, eg. 10% of your investment.
The image above shows a 5 minute charts of EURUSD and a strong down trend following a news release. In theis example you can clearly see that the news generated a very strong trend that lasted 20 minutes (4 long and red candles) before the market tried to pick up. It touched the moving average (red middle line) and it continued in the direction of the news trend for over an hour, although with much less strength.
You can also trade other Forex and World news and look at correlated assets, however this requires an in-depth knowledge of economic interdependencies. Trading the news may have different meanings to traders across both sides of the Atlantic and Pacific oceans. For European binary options traders, trading the news will mean having to fish out those assets that respond best to a news trade, and knowing when to execute those trades. For American-style binary options traders, trading the news may look a little bit different: it involves trading specific news items listed on the US platforms such as Jobless Claims and the Non-Farm Payrolls.
Let us now see how to trade selected news items on both types of binary otions.
Trading the news with European-style options
Before we move ahead to this, it is important for traders to understand that there will be occasions when the platform will be unavailable for trading during news releases that produce heavy volatility. When this happens, you need to know how to trade the news. This can be done in two ways:
- You can wait for some time to look for technical entries which favour the asset moving in the news direction.
- You can also decide to trade assets which are correlated to the main assets that are usually traded for these news items.
Chinese manufacturing data
If you are trading Chinese GDP Data, you can decide to either trade the asset directly linked to this news data (the Australian Dollar), and place a trade on the AUDUSD, or you can trade a correlated asset which is closely linked to this data or to the Aussie Dollar, which is copper. You could also decide to trade the stocks of copper-producing companies for good measure, but this will have to be traded on a delayed basis as the stocks absorb the news release. You may also round off this trade by trading the Shanghai Stock Exchange, which is represented as SSE180 on most binary options platforms.
Crude oil prices have been forced down to 6-year lows as a result of a surge in supply caused by increase in shale production and the anticipation of Iranian oil coming into the market as a result of lifting of sanctions placed on the country. Demand and supply of crude oil is driven by many factors and many binary options assets are affected.
The play for crude oil news is therefore:
- direct crude oil trade
- a trade on assets that are tied to crude such as the CADJPY, USDCAD and EURUSD. You may also trade the stocks of oil-producing companies such as BP, Gazprom, ExxonMobil or Lukoil.
The absence of specific commodity news on the forex news calendar is actually a good thing for binary options traders who rely technical analysis only. This means that the likelihood of an asset getting frozen out because all traders are in one direction is very minimal. However, if your main attention is focused on trading commodities to the news you should first ask yourself what are the best commodity plays to focus on?
If you look at Chinese manufacturing data very closely and it’s slowing down, it will impact several commodities negatively: copper, gold, etc.
- Commodities are what drive emerging markets. You could also watch currency pairs such as the USDBRL, USDRUB and USDZAR.
South Africa is very sensitive to commodity news as exports of commodities such as gold, copper and platinum constitute the bulk of its earnings. You could also look at the commodity-producers in this country and trade them on the Johannesburg stock exchange or trade the JSE asset on binary platforms where listed.
Sovereign debt and currencies
The sovereign debt crises started many years ago and it has affected many countries already but recently the most exposed countries with large sovereign debts were Greece, Ireland, Portugal and Spain at the same time, which was between 2009 and 2011. However, Greece is the only country which is still finding itself unable to cope with the massive $350billion debt hanging on its head and no major resources or means to pay this off.
The Euro has suffered greatly with all the talk of a Greek exit from the Eurozone or the so-called “Grexit”. This is a pointer that currency assets are particular susceptible to fluctuations with sovereign debt.
As long as the Greek situation is not solved, there will be increased pressure on the Euro as well as on the stock markets of the region. A close look at the stock market indices of Europe will show that they all react similarly to any situation facing the sovereign debt crisis in Europe, as all countries of the region will be affected one way or another. For instance, when the Greek government defaulted on its payments and had to rely on European Central Bank funding for its banking system, the stock indices were all affected as well as the value of the Euro.
- So to trade the sovereign debt crisis in Europe, you can choose the EuroStoxx asset, or the DAX, SMI, FTSE100 or CAC40.
Trading the US-Style binary options
On NADEX, you can trade news items listed on the platform directly, however this may be quite difficult as there are no clear indications of whether the news will influence the markets or not, as in the economic calendar which can be easily followed. If you’re a biginner you should only trade assets that are associated with the individual news trades. News trades on NADEX are:
- FOMC Funds Rate
- Weekly Jobless Claims
Whether you’re in Europe or America you are strongly advised to follow the international economic calendar as it really shows the most important releases from around the world which really influence the markets and our lives as well, perhaps more than we’d like to admit.Published in Education