In the first part, you learned by the criteria of news for profitable trading and how to set up an economic calendar. In the second part, we continue to teach how to trade on the news: types of trading strategies and recommendations for use in addition to binary options trading signal.
Compared to the stock and foreign exchange markets, binary options have two significant drawbacks: a time limit (expiration date) and the impossibility of early closure. The option ends either in profit or loss. Brokers can close the transaction before the expiration, but the return rate does not exceed 10-15%.
A binary options trader is always in a more losing situation than a Forex trader - you can open two pending orders and wait for one of them to work after the news release. The second order can be closed without losses at any time. Yes, you can try to open an option to exit the range or two "On Touch" options above and below the current price in the expectation that in the first minutes the price will move in different directions. But there are problems:
The only ones from the point of view of acceptable profit will be the «Higher/Lower» transactions used in most binary options strategy. The three most common ways to trade options on the news:
A trader opens an option based on preliminary forecasts and their correctness in the past. In the economic calendar, statistics are visible, on its basis, it is possible to assume in what direction the market will move. We look at an example:
Data on the change in the number of people employed in the non-agricultural sector of the USA, better known as Non Farm Payroll, is taken. It is published monthly and is considered the strongest news among traders. Over the past six months, only two times (highlighted in red) the forecast turned out to be incorrect and at first glance the strategy of preliminary opening of options makes sense. But this is only at first glance. Let's see news with high volatility:
The results are not so good compared to the previous case: an equal number of correct and incorrect predictions. If you trade only on this news and the profit on option is less than 100% there will be only losses.
You can try to create a news list with positive forecast statistics, but this will not lead to a significant reduction in risk. We remind you that a profitable strategy for a binary option for newbies must have at least 7 profitable trades out of 10. Forecasts do not come true, and positive statistics can become negative at any time. It is clear that without access to insider information this type of trading has no prospects.
2. After the news release, open the option with a "long" expiration of 10-15 minutes.
At the heart of the strategy is the hypothesis that after the news is released, the direction of the market will not change until the end of the current trading day. If you look at the historical chart, one gets the impression that this always happens, but this is only at first glance. Do not forget that we analyze what has already happened, and not the real dynamics of trading, which the trader sees in the terminal. Here’s an example:
The flat-ended with a sharp downward impulse. What prediction can be made from this fact? It is logical to assume that we have a classic situation from binary options guide, where large players fix their profits and remove the Stop Loss of small players.
Next, the trader sees the beginning of the upward movement and makes the second assumption - the market, after all, reacted positively to the news and opens a CALL option to increase with an expiration date of the end of the current day. Do not forget that the decision in which direction to open the option must be made in a limited period.
A quick continuation of the upward movement did not happen, it all depended on the expiration period - with 3-4 minutes the result of the option is difficult to predict, the price is almost near the opening level. If you increase to 10-15 minutes, you can hope for profit, if you set the expiration there will be a loss even further. Look at the second downward impulse of market makers once again taking profits and removing Stop Loss small players. Readers may object here:
This is just one example where even an exact binary options strategy does not give positive results until the end of the current day. Such situations occur quite often, on all trading assets, technical analysis indicators do not help here. For example, sharp movements as in the figure above lead to "sticking" of overbought/oversold oscillators in their extreme zones and they do not react to the market for a long time even if the trend reversal.
3. At the time of the news release, a short-term option is opened.
Options open in the first 1-2 minutes after the news release, when the chart already clearly shows where the first impulse of the price is going. At the same time, the expiration time is selected for each event, but not more than 5 minutes.
Such trading places high demands on three factors:
As an example, Forex's reaction to the release of NFP (Nonfarm payroll employment) data is shown on October 4, 2019.
The market provides two points for opening an option:
We warn of the dangers of using turbo options after 60 seconds. A delayed opening of even 2 seconds can lead to loss, even if using the binary options bot!
Recommendations about use …
Let's summarize. The release of news and statistics, even the strongest from the point of view of fundamental analysis, will not guarantee strong price impulses or a trend reversal - there may be no movement at all.
But all traders should be able to use the news in a binary options strategy. This is a good source of additional profit, but only with strict discipline and proper money management.