The binary option trader needs to track impending central bank decisions and statements. Their words are powerful triggers for market sentiment to cascade through the social media. By closely following central bank statements and minutes, the trader will get, in advance, one of the best leading indicators for whether conditions are suitable for different trading strategies.When a central bank statement is due, consider an out-of-the-money strategy.
It is more appropriate than a deep in-the-money strategy because there is a high potential for a surprise in the statement. This is what happened when Trichet, the head of the European central bank, spoke on May 5. It signifi cantly moved the markets because interest rate expectations for the EUR/USD changed from being hawkish to dovish. The EUR/USD registered a drop of 125 pips and caused a two-week low.
The moral of the story is to always expect surprise. The trader on the side of surprise makes the most money.The binary option trader needs to keep monitoring fundamental forces and their most recent patterns. The quickest way to do it is to scan the key indices representing the fundamental forces. These include: spot gold; crude oil; U.S. Dollar Index; and copper.Evaluating Currency Pairs: Nadex offers trading in several currency pairs.
The pairs are: EUR/USD, GBP/USD, AUD/USD, USD/CHF, USD/CAD, USD/JPY, EUR/JPY, and GBP/JPY.Trading binary option contracts in these pairs provides a virtual round-the-clock opportunity from Monday morning (3 p.m. EST) until Friday at 3 p.m. EST.Certainly all of the technical analysis techniques directly apply to these pairs.There are several items that the trader should know about in evaluating market conditions relating to the currency pairs.
A key feature is that currency prices are not random and refl ect major economic forces and sentiment expectations. Below are some of the terms to study and know in order to evaluate currency pairs:1:Interest Rate Expectations: Interest rate expectations are the key drivers of currency-pair price action. When interest rates are expected to rise, the currency pair will become more attractive and therefore attract demand.
The general effect is the pair increases in value.2:Relative Growth: If one country is growing faster than another, the currency of the stronger growth country will tend to be stronger as it attracts capital.3:Data Releases: Currency pairs are extremely sensitive to economic data releases. Disappointing GDP results in a weakening of the currency. Surprise positive data generally increases the value of the currency.4:Resistance and Support:
These daily and weekly levels are important for currencies as $5 trillion a day is exchanged; intraday movements are subject to noise trading and not that meaningful.5:Commodity-based currency pairs: The USD/CAD, AUD/USD, are the main commodity-based pairs and move in reaction to commodity markets.6:Cross pairs: These exclude the U.S. dollar. Binary options on GBP/JPY and EUR/JPY are available. Cross pairs exhibit more predictable patterns because the U.S. dollar is excluded and this removes a lot of potential noise.