There are a number of important news events this week that could create some worthwhile opportunities for news trading, particularly the kind of short term risk-controlled speculation common for binary options traders.
- Ongoing events in the MENA region that affect oil producing nations and thus oil production
- The Bank Of England Rate Statement Thursday
- The US Retail Sales Report Friday
- The EU Economic Summit (as it relates to latest plans to resolve the EU sovereign debt and banking crisis
The following approach applies to trading news events for both intra-day, daily, and multi-day traders, whether the trend is up or down. Because it is simple it is relatively easy to apply, and puts the odds of correctly gauging the trend further in your favor.
That is critical for any kind of short term trading.
It’s even more important for binary options traders, because correctly forecasting the trend is really the only thing they must do right most of the time in order to be profitable. With binary options, there is no complex risk management and exit planning, unlike that needed with traditional retail forex, stock index and commodity trading vehicles.Watch Risk Appetite Barometers
Most assets move with overall risk appetite (aka optimism or pessimism) unless there is a very asset-specific event. For example, expect the Australian dollar to move with overall market sentiment unless there is a significant Australian news event.
Always keep an eye on key barometers of risk appetite like the S&P 500 index, the AUDJPY, or other chosen barometers of overall market optimism or pessimism, for the same time frame in which you trade. For example, those trading off of hourly charts should watch these assets on hourly charts.Monitor Trends For Shorter and Longer Time Frames
Also check the trend of both your chosen risk barometers and trading vehicles on both shorter and longer time frames than that on which you trade. Shorter time frames allow you to monitor your trend more closely and also show you potential support and resistance points you might miss on your trading time frame.
Longer time frames allow you to spot more significant support and resistance levels that might affect the trend you are trying to follow.
For example, those trading the EURUSD via hourly binary options should check 5-10 minute charts to monitor the underlying health of the hourly trend on both the EURUSD and the S&P 500. They should also be aware of key support and resistance on the daily charts for these, and note if there are any support/resistance levels that are close to current price levels and might interfere with the trend on which you’re trading.Use Trend Indicators To Decide If There Is A Strong, Tradable Trend
Unless you’re experienced with range trading, you should only trade when you have a clear trend, and trade in the direction of that trend. That puts the odds on your side, if you have a reliable way of identifying strong trends that are likely to continue in your chosen trading period, be it within an hour, day, week, or longer. To help discern whether there is a clear trend that is likely to continue long enough for you to profit, you need to use one or more trend indicators to provide confirmation of the trend.
Here are just two of the more popular ones. There are many more.COMBINE 1 AND 2 STANDARD DEVIATION BOLLINGER BANDSSetup And Settings
Apply 2 sets of Bollinger bands to the chart of whatever you’re trading. Both sets should be set for 20 periods. Thus on an hourly chart they reflect price movement for the prior 20 hours, and on a daily chart they would reflect price movement for the past 20 days, and so on. However one set should be set for a width of 1 standard deviation (from a 20 period moving average), the other should be set for a width of 2 standard deviations. With experience you may find different settings provide more reliable or earlier indication of sustainable and thus tradable trend.Interpretation
Let’s use the below chart as an example. It happens to be a daily chart for gold, but it could be for anything in any time period, the same ideas would apply.
GOLD DAILY CHART COURTESY OF ANYOPTION.COM 01mar07 1307 D
When the candlesticks enter the region bound by the upper 2 bands (the upper 1 and 2 standard deviation Bollinger bands), that suggests enough upward momentum for an uptrend that will continue.
Those planning on exiting a trade by the end of 1 or a few days would have a better chance of profiting by buying gold, i.e. ‘going long gold.’ They would then start thinking about when to open new long positions in gold based on fundamental (news about supply and demand) and technical data (other indicators of trend, support and resistance levels, momentum indicators, etc)
The opposite applies also. Once the candles are within the lower 2 bands, that condition suggests it’s time to go short the asset and trade in the direction of the downtrend. Those trading gold on a daily or multi day basis would be looking for entry points at which to buy goldMOVING AVERAGE CROSSOVERS
When a shorter term moving average crosses a longer term moving average that suggests the trend is gathering strength. If both moving average lines are rising and the shorter term moving average crosses above the longer term moving average, that suggests the uptrend is gathering strength and is more reliable and tradable. For example in the above chart, when the yellow 20 day moving average crossed above the red 50 day moving average, that provided additional confirmation of the uptrend and made it clear that the trend on the daily gold chart was firmly higher. Gold traders would now be even more eager to buy gold for the coming day or days.
DISCLOSURE & DISCLAIMER: AUTHOR SHORT THE EUR FOR PERSONAL PORTFOLIO. THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER