Using an Economic Calendar as Trading Tool-How to trade Options

The economic data calendar is, in fact, a key fundamental analysis and binary option trading tool. Many sites offer economic calendars and they are easy to access. It is so important that no one should trade without the calendar
being reviewed fi rst. Not knowing that an economic data release is scheduled to appear, leaves your binary option trade subject to great risk.

The economic calendar provides a critical and advanced alert function for the binary option trader. It lists the time of economic data releases. These releases provide key measures relating to economic performance in countries around the world.The markets pay close attention to these releases and react to any surprises in them. In weeks where key economic data releases will occur, there is certain to be greater volatility.

The binary option trader has two basic approaches relating to trading the economic data releases. The fi rst approach is to view economic data releases as a factor in raising the overall volatility level of the markets during that week. Greater volatility benefi ts strategies that choose deeper out-of-themoney strike prices because of the tendency of prices to move with greater momentum in reaction to surprise announcements.

But a cautionary note is in order regarding volatility. It is not simply the level of volatility that is important, but its rate of change. When volatility is at extremes it can be a reversal signal. Traders view high volatility as a sell signal and low volatility as a buy signal. How to track volatility will be reviewed in a later chapter.Alternatively, the trader can view a particular economic data release as a directly tradable event.

In this context, the trader can anticipate a bullish or bearish direction, and choose a corresponding strike price. However, what happens if the trader wants to trade a big surprise, but doesn’t know which way the market will react? He can, in fact, use binary option trading to play a breakout in either direction. This is similar to a straddle strategy in regular options. A third approach is to wait for the economic release to occur and develop a trading strategy after the market reaction to the news.