In any given week there are tons of economic news reports here in the states and abroad. This gives you many opportunities a week to capitalize on them. We have jobs number in many countries as well as retail sales, confidence numbers, monetary policy statements, manufacturing numbers etc …
So when you have major economies like the US, Japan, Europe, Australia coming out at different times during the day and night and over the week it allows us many chances to take advantage of these opportunities. I have traded futures and forex for a while. I know its tough to trade news, sometimes you choose right but maybe get stopped out because timing was off only to see it go the way you were originally trading it, that is frustrating. Or even see it move sky high in the original direction and stop you out and now you can figure out where to enter again and then you enter and get stopped out again only to see it continue on your original decision. Some things you would not think about trading during news times because either it looks dangerous or your scared of spreads going crazy or frozen systems etc ..
Well Binary options are the answer. Now the things I am about to mention are not fit for everyone, and in no way are recommendations, you need to do what fits your trading personality and whats in your trading plan. I like to fade big spikes on news myself but that can get stressful when trading the actual product. When I stumbled into Binaries years ago I found out how much better I can do that. Part of it is instinct that will come in time and knowing how the product you are trading moves. Lets say we are trading binary options on the SP500 we are waiting on the unemployment rate.
We are expecting 10% then 9.5% comes in as the actual number. What happens? Well one thing I look at is wow we beat the number by a big margin so the market is really going to like it! So the market might be at 1100 even right before the number, then all of a sudden we start jamming up. Then I look, OK we just jammed up 20 points and we are now at 1120 even.
So I start thinking this could be an over reaction, sure it came in much better then expected, but the market has been up big in the past few months and 9.5% is still almost double what is the normal so in reality it is not great . As traders start to realize this might start coming down. So I look at the strikes and decide what kind of risk I want to take. Now I do not want to take much. So I look for an option that it out of the money say I look at the 1115 strike thinking it might come back down to that area. So I look at the price and it might be trading at 70 bid by 75 offer. So I short it at 70. That means my risk is where it can expire if I am wrong which as with all binaries is at 100. So 100-70 is 30. I am risking 30 points maximum if I am wrong. But I can always take out if I do not like it at any price if it hits 80 I can buy it back and only lose 10 points. So the expiration is a catastrophe stop. But if it looks like I am wrong or I see a pattern that might negate the trade I will take out. So I dropped at 70 now my possible max profit is 70 points. Which is a great reward to risk, my reward is 70 when risk is 30.
Now If I held to expiration and the market closed at 1114.99 I profit on the trade the full 70 points, I only need it one tick below my strike to take advantage of full profit. But on this type of trade I am really looking to get in and out on an overreaction.
So the market moves down over time to 1116, still out of the money by 1 point. If I let it expire here I lose, but now the price has dropped because we were out of the money by 5 points and now we are only out of the money 1, so the new price is 25 bid by 30 offer, so I buy it back at 30. I make 40 points on the trade and I am done, no this trade could go way back up to 1125 and be way out of the money and if I held till expiration I would have lost, but the great thing about NADEX is I can trade in and out of these, with limited risk and great profit potential.