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Using the Indexes for Trading Decisions

There is quite a bit of evidence that the U.S. economy is growing, but is that the whole story? Recent data says that no, it’s not. For example, look at the S&P 500s performance over the last part of 2013. The last quarter growth rate was around 6 percent for this indicator, but that’s a very distorted figure. Certain industries grew in certain manners, while others performed pitifully. This sort of thing doesn’t seem to matter if you are trading just the index, but in reality, it is extremely important, especially as we move into a new year of trading.

Consider the insurance sector. They are expected to report growth of around 100 percent during this timeframe–a far cry from the just 6 percent for the rest of the index. And even though this is not a huge chunk of the S&P, it does have a big effect on the whole picture.

How do you use this knowledge to your advantage with binary options? That’s a bit trickier to figure out. For one, you need to know that the 6 percent growth is being driven by a small contingent of companies and not by sustained widespread growth. This presents a tricky situation since a few companies can have a big impact if they start to perform poorly. Also, it gives you a chance to spread out your personal trading. Yes, you might be an expert on an index, but you can also use this fact to help you trade individual companies, too.

Think of major stocks in the S&P that are not directly related to the financials sector. Apple (AAPL) and Amazon (AMZN) come immediately to mind. Both companies sustained growth during this time, despite the fact that their sectors were not leaders for the last part of the year. This should be a good indicator to their financial health. Even though they weren’t growing as quickly as the financials–and in particular the insurance industry–they did very well. For 2014, this is a good sign for long term health and can be used to your advantage with both long and short term binary trades.

Not all parts of the S&P are included in a binary broker’s list of assets. But this doesn’t mean they aren’t important. The more you understand how an index works, and how the internal companies interact, then you can not only treat the index with better preparedness, but you can also trade the companies that comprise it with better results. You don’t want to overextend yourself with your trading, but a more pointed approach refined with superior knowledge definitely gives you a huge advantage over other traders. The big problem is that some of the bigger movers in an index are often overlooked by the brokers. Even a major broker will not include a stock like Omnicom (OMC), a discretionary company that saw big growth in the last three months. You can trade it if you’d like with other methods (such as through a traditional stockbroker), but it will be almost impossible to trade it as a binary option, unfortunately. But if you know that one of these unlisted companies is going to have big results, you can use your knowledge while trading the things that are listed.

No one company acts in a vacuum. Knowing how interactions take place, and how sectors can affect the whole of an index, you can take your trading to the next level. It involves research and effort, but the more of these things that you put in, the better your end results will be. In this sense, the more well-used time you devote to your trading, the bigger your profits will be.
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