Trading on the news: what it is and how to trade using this strategy
Binary traders often use the method of news influence for transactions. This is a simple tool that really works. Taking into account the strategy on the news, you have to be able to make a right choice before its release and start buying or selling.
Experienced traders have been long practicing and using strategy on the news. The essence of this instrument is to conduct the market analysis and the upcoming economic indicators. The brighter the probability of the news impacts on the market, the stronger the signal of the decision.
Economic news are divided into two types – the expected news (such as the company’s annual report or quarterly index of unemployment in the US), this kind of news is included in the economic (financial) calendar, and, as a rule, takes place in one and the same time each month, quarter, six months or a year.
The second type of economic news – the unexpected news, it cannot be included in the economic calendar, as its appearance was not planned. For example, the introduction of EU sanctions against Russia or default in Greece, perhaps, a sale or acquisition of a company, and so forth.
With the unexpected news everything is simple – it has a direct impact on the market. For example, if EU imposed sanctions against Russia, the ruble will become cheaper, if Greece bankrupted – challenges for the European Union, it means that the Euro will fall, and so, by the same logic.
But with regard to the expected news, it affects the market in accordance to whether the analysts’ predictions came true or not.
Trade on the news is that the trader performs fundamental analysis before buying a binary option. Fundamental analysis is to assess the asset, taking into account all external and internal factors that can affect its price behavior. The biggest impact on the value of the asset has a release of economic news related to this asset.
It is important to realize that asset prices are changing not only after the news release, but also on the basis of market expectations as for the news (i.e. before the release).
The economic calendar will always help you to deal with the release of the news.
After the news release, the markets begin to react and here every second counts. If you try to make a deal, even an hour after the news, there is a chance that by the time the market has already reacted to the news. Sometimes the reaction of the market is so excessive that even an hour later the correction and rollback may start.
So, when trading binary options on the news, it is important to enter the market as soon as possible after the news release and go along with the market: if you can see that after the news release the market is rapidly going down – buy a Put option, if the market went up – buy a Call option.
Thus, 15/7/2014 in the UK was released the consumer price index, which was significantly better than its forecast.
Immediately after the news the price began a rapid one-way traffic. On the hourly chart of the GBP/USD currency pair quotes a strong recoilless momentum up by 64 points is seen.
Here’s how the above price movement looks at five-minute chart.
As you can see, news spot has dislocated the market prices far enough. At the same time, all we had to do in this situation – is to purchase a classic option or make a transaction with the option «Out-Range», which price limits would easily struck the quotes.
Terms of expiration
To trade on the news you will accept the terms of expiration from 15 minutes to 7 hours.
To trade on the news we need a lot size of 5% of the deposit. Thus, for a lot of 100 USD, you need a deposit at least of 2000 USD.
Finally, I want to say that trade on the news is a very exciting experience, which brings not only profits, but also broadens your horizons and knowledge about how the world’s economy operates.
That’s all for now. Got any questions? Just ask the expert!