How to trade binary options based on news
One of the simplest and clearest strategies for binary options trading is to take advantage of news. If you are not familiar with binary options and have faced the Forex markets only by changing your currency as a tourist, trading on the news may be one of the best strategies to start with.
What is the economic calendar?
So how do we trade binary options based on news? Let’s look at it in detail.
All economic news can be divided into two categories: planned and unplanned. The latter include a variety of scandals, accidents and other events that cannot be accurately predicted in advance. On the other hand, planned economic news are statistics, various reports, speeches of officials and other events that are scheduled in advance.
Planned news from the economic sphere are grouped in a so-called economic calendar. Every piece of news is assigned a degree of importance, depending on its likely effect on the financial markets. For example, labor market statistics in Albania and labor market statistics in the United States naturally have a very different weight. The importance is indicated through a star rating, the higher the number of stars, the higher the likely impact.
The economic calendar also indicates the currency and financial markets which are likely to be primarily affected by a particular piece of news. For example, if the assigned currency to an event is the AUD, the main impact will be on the Australian dollar and the stock market in Australia.
In addition, the economic calendar contains analyst forecasts when available and values from the previous period, as typically economic announcements are periodic.
Strategy of trading binary options on news
Based on the above information, we can start to figure out how to trade on news. To begin, select some important news that come out at a time when you can actually trade.
Wait for the first reaction of the market, and follow the trend – call in a rising market and put when it’s falling. Don’t be too greedy – the market often changes its direction. Often it’s better to stop placing new trades after the impact of the news has subsided, as you will no longer have a strong market trend to rely on. After all, a return on investment of around 60-70% on short-term transactions is much better than losing the entire investment, isn’t it?
Example of trading binary options on news
Let’s pick an important piece of news for starters. One of them is the Non-Farm Payroll report, which estimates the number of jobs created/lost in the non-agricultural sectors of the US economy – the so-called NFP report.
It is an estimate on the dynamic of the total number workers in the United States, based on payrolls. If the NFP rises, it indicates an increase in employment. If it grows by 200,000 or more, it can be translated into a GDP growth in the United States by roughly 3%.
The report is issued once a month, usually on the first Friday of the month. Regardless of the situation, almost every publication generates huge movements in the markets. Therefore the NFP is just perfect for news trading.
After that we choose the EUR/USD as our asset for trading. Once the report is published, we open a short-term position – 30/60/120/180/300-seconds, depending on published data. The more the data differs from the forecast, the more significant will the market movement be. If you have done everything correctly and on time, in most cases, trading on such important news as the NFP should generate some nice profits.
These are the basics of successful trading on news. It’s as simple as that.