Trading the news is a popular method of analysis when it comes to short term trading, and this technique can be especially powerful in the world of binary options trading. When you trade the news, you are using a powerful method of price prediction. For example, when a publicly traded company reports that their earnings are higher than what was expected, more people will be buying the stock, and this drives up the price. The same can happen with any type of asset. If there is a news report that indicates an oil shortage about to occur, demand for crude oil will go up, and this drives up the price almost immediately.
News trading is closely associated with supply and demand, as you can see. When a news report has an effect that will increase demand, the price will go up. When demand is diminished, the price of the asset will go down. Learning how to spot these messages is pretty easy. Because the basic rules of psychology persist here, you don’t have to be a stock market expert to be profitable. The best part is that binary options are ideal for this type of trading. You don’t have to be right by a lot to profit here, you just have to be right.
Let’s look at an example. Assume you think that Apple’s earnings report portrays a weakness in the company. If you were to trade this company over the stock market, you would have to short sell the stock, and this can be very costly. To make a decent profit, you would have to trade thousands of dollars’ (or more) worth of the stock and you would have to have a reserve in your margin account sizeable enough to avoid a margin call. But with binary options, you can trade small amounts; even as little as $100 will give a good return.
But assume that you were a little bit too excited about a report that didn’t have a big impact. Assume you sold short Apple, but they only lost $0.50 per share because of the negative report. Your short sale would probably not even be worthwhile. The amount that you earned, if it was even enough to overcome the fees and commissions, would only be a few dollars at the most, the amount you risked compared to the amount you earned would not be favorable. But with a binary option, when you trade the news, you will be risking far less to earn quite a bit more.
Binary options brokers have made a few small attempts to minimize the impact that trading news has. For example, many brokers do not allow you to trade stocks during the first 30 minutes that the stock market is open. This is a time period where reports are often released, so this makes trading the news a little bit more difficult for the average trader. Still, this has a minimal impact, so if you are interested in trading news releases that occur in such a manner, you can still profit most of the time—even if the biggest gains have already occurred.
Trading the news is a good approach to binary options trading success because little price movements can have a big impact. However, you should always double check with other types of indicators too, such as technical analysis, in order to give yourself the very best chances of success when you are trading. Trading the news can be powerful, but it does not always yield the results you would expect. As such, further knowledge of trading techniques can increase your correct trade rate.