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Trading indices can be very confusing, especially for short term traders. These act as a great way to measure the health of the stock markets, but a lot of people don’t even know where to begin when they want to start trading these. There are many active stock traders that could grow their potential for profits just by incorporating an index or two into their portfolio. You don’t need to look far to start trading indices, though, even if you want to trade foreign indices. With binary options, you can trade indices from all over the world—all from the same web platform. Binary options make index trading a lot more simplified and they can even cater to short term investors in a way that traditional index trading cannot replicate.
The first benefit is convenience. If you want to trade the Dow Jones Industrial Average, for example, you would have to register with a broker, and then you would need to invest thousands of dollars in order to eke out a small profit. But with options, you can find big returns off of small trades. A successful 15 minute option of $200 could return $146 back into your account, a profit rate of 73 percent. To make this much in a traditional setting, you would have to invest thousands of dollars on a lucky day.
But this isn’t all. International investors would have to register with multiple brokers if they want to trade the Dow and Japan’s Nikkei 225. But with a single binary options brokerage, you can gain access to both of these markets without even having to change screens—even though they are located on different sides of the world. Just a few clicks of your mouse and you can execute trades on both indices within a matter of seconds. This is a huge benefit and can speed up your trading day quite easily. It eliminates a lot of the hassle of using different brokers by consolidating your trading to a single platform.
Binary Index Trading
The short term nature of binary options can let you make more money in a shorter period of time. A day’s investment with a stock broker might make you a few dollars, but you can make much more within as little as an hour if you are a skilled binary option trader. But more importantly, your method of analyzing things can be very different just based upon how long of a timeframe you are looking at. A traditional index trader will have to rely very heavily upon fundamental analysis methods in order to give themselves a good feel for where markets will be in a week, a month, or a year. But when you are trading 15 minute options, you will want to look more at the technical side of things. This has a distinct advantage to it. Regardless of what you are trading, charts are transferable. A MACD line on a currency pair’s chart will have the same meaning as a MACD line on an index’s chart. This will help people familiar with one type of short term trading, such as commodities, be profitable in index trading, too.
Binary options bring a sense of universality to your trading. You can trade multiple assets, multiple markets, multiple timeframes, and multiple sub-classes of options all from the same broker. For those that are looking for diversity, trading index binary options can be a great way to add a new element to your trading without much of a hassle. This is one of the simplest ways to diversify your trading portfolio, and the potential for profits here are much higher than most other types of trading.
Dow Jones Options
There are three primary indices within the United States market, one of which is the Dow Jones Industrial Average. Binary options traders often find it easy to profit from index trading due to the fact that there are plenty of market reports that impact their value and make direction forecasting a simpler process. Although the U.S. indices can be quite volatile at times, more often than not, the prevailing investor sentiment is quite clear.
No other index highlights economic conditions within the United States quite like the Dow Jones. Whenever this index value is trending up or down, traders can be sure that some recent data has swayed investor sentiment and is the driving force behind the price push. There are many factors that can can cause this index to rise or fall, which means that knowing what to look for in terms of economic data reports is going to be extremely important.
The first concern should be the exact hours during which the Dow Jones Industrial Average is open for trading. This will be from 13:30 GMT to 20:30 GMT. The market is open Monday through Friday (major U.S. holidays excluded). This index is often quite active just prior to opening and just before closing for the day. Keep this in mind when planning out binary options trades in advance.
The key economic data that can influence the value of the Dow Jones index include:
- Manufacturing data
- Employment and unemployment data
- Gross Domestic Product
- American consumer sentiment data
- Housing data (existing sales, new construction, etc.)
- Crude oil prices
- Changes to primary lending interest rates
- Earnings reports (for companies included in the index)
- U.S. credit rating changes
Particular attention should be paid to employment data because it is known for really driving the price of the Dow Jones. Whenever unemployment is high, this index typically suffers a drop in value. Manufacturing data is linked to employment data, as is consumer spending. When manufacturing numbers are high, watch for consumer sentiment numbers to increase. Whenever U.S. residents are feeling positive about current economic conditions, they become willing to spend more, thus causing further improvements in conditions.
Out of all the major indexes, the Dow Jones is the last to open for the day. In fact, this index does not open for trading until both the Asian and European marketplaces have been open for quite some time. This actually places traders of the Dow at an advantage because it allows for a general assessment of the sentiment within the global markets. Quite often, specific markets are impacted by movements within other markets. While this can hold true for the Dow, note that is it most impacted by the events taking place within the United States. The fundamental analysis must be completed along with each trade that involves the Dow Jones Industrial Average. An economic calendar, used to track the dates and times of specific economic data releases, together with the skills learned from binary options basics and further binary options education, all serve as “power tools” in your trading endeavours. When actual data does not line up with what market analysts expected, be prepared to enter into one or more binary options trading using this index as the chosen underlying asset.
Dollar Cost Averaging Forex
When it comes to long term investing, dollar cost averaging is one of the simplest ways to overcome short term fluctuations in the market. But when it comes to short term binary options trading, using this principle isn’t quite as straightforward. When you learn how to use this to your advantage, though, it can have a big positive impact when it comes to creating a profit. Here, we will show you how to use this trading strategy to your advantage, along with what to look out for.
First, you need to understand what dollar cost averaging is. This is simply the concept that if you invest money into an index fund over time on a regular basis, because of the general trend that major indices have, the short term ups and downs will even out and you can ride the upward trend and see a slow and steady profit over the course of time.
With this in mind, you should have a primary focus on the major indices, such as the S&P 500 and the Dow Jones Industrial Average, when it comes to your binary options trading. You know that these indices have an upward slant over the long haul, but thanks to the unique expiration feature of binary options trading, you can’t just take out a whole bunch of positions and expect to make a profit. Instead, you first need to confirm with the appropriate technical indicators that the trend is upward for the timeframe that you are selecting.
Your goal with this strategy is to find an index that is in a confirmed bull market, and that is trading at a below average price. Once you’ve found a bullish trend and a suitable entry point, it’s time to execute a position. You should have an expiration point that is far enough in the future that there is ample time for the index to recover to where it should be. As a general rule, this can take up to a couple hours, or even a few days. You should plan accordingly with the expiries that you select. Many brokers offer long term binary options, and this is where you should be putting your money. And because this plays on the dollar cost averaging concept, you should be taking out many of these trades per week, and they should all be for very small amounts. How small is up to you, but you shouldn’t really ever put more than 1 percent of your trading account into a single trade with this.
The benefit is that over a long period of time, you will see steady growth.
This method doesn’t work with 60 second trades. There is far too much variance here, and the lowered rates of returns that brokers offer for 60 second binary options makes using this method a losing proposition if you go with 60 second trades. You should really avoid trades of less than 15 minutes altogether, but many traders wouldn’t use this method if that was the case. It is possible to make money trading 15 minute options, but it isn’t easy. Ideally, your average trade should be 30 minutes or longer.
Another big drawback to this is that it doesn’t allow for quick profits. This will see ups and downs, and it will create a profit when done right, but it is more of a long term slow build up strategy than it is a home run attempt.
Another drawback to be aware of is that if you are looking for substantial profits, this is more of a supplement than it is a main strategy. You should have other trading strategies in place in addition to dollar cost averaging in order to spur forward profits at a quicker pace.
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