For short term traders, trading the news is one of the most powerful strategies you can use. This is especially powerful in the world of binary options where the biggest and most popular stocks are traded as underlying assets, and it also can be used in the Forex market and in the commodity market.
How does it work? It’s pretty simple, actually. You have a cause and effect that takes place, and all you are doing is predicting the effect, applying the right trading strategy, and then waiting for a profit. So, a piece of information is released, you predict how that info will influence an asset’s price and apply the appropriate binary option trade, and then wait for the results. One of three things will occur. The first is the best case scenario. Your prediction was right and you reap the full rewards of your trade. If the impact is powerful enough, you can repeat the process over and over again with short term trades.
The second scenario is when your prediction is wrong. When this happens, you lose what you invested into the trade. Hopefully, you are able to learn from your mistakes and improve for next time. No one will be right all the time, but the more you do this and the more you study market behavior, the better your accuracy rate will be.
The third scenario happens to a lot of beginning traders, but it can be hard to detect at first. This happens when the news item that you based your trading strategy upon had little to no effect upon the outcome of your trade and things are left to random chance. In this case, even though it should be a 50-50 proposition over the long run, you are still going to lose money simply because in the binary options market, you need to be right much more than 50 percent of the time to see a profit. This might seem random and it might feel like it should be a neutral occurrence, but random chance is not your friend. To be profitable, you should aim for a correct trade rate closer to 65 or 70 percent.
The key to trading the news successfully is your timing. Market psychology is not too difficult to learn, and once you get a firm grasp on predicting how a news event will sway price movement, then the next step is to learn how to accurately decide when that movement will begin, and when it will end. This is why binaries are such a strong tool for trading on the news. You can anticipate how long it will take for movement to occur, and because of the nature of these trades, you can have an automatic safeguard in place to make sure that you exit the trade at precisely the moment you want to. Once you gain some experience and learn how long these take to manifest, you can boost your profit rate considerably. One shortcut to success involves getting reliable and timely news sent directly to you in real time via a streaming service. This will increase your correct trade rate, too, but in a much quicker fashion than searching out news stories on your own.
In other words, trading the news isn’t quite as easy as others might lead you to believe. Yes, it is simplistic and effective, but tying the elements of success together takes a lot of experience and a good eye for the small nuances that will influence the outcome of a trade. Once the basics are mastered, though, you will be profitable with this, and you can begin fine tuning your approach to get as much money out of this method of trading as possible.