News Trading Strategy with Binary Options

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Video Transcription:

Hello, traders. Welcome to Daytrading Binary Options. On this lesson, we
will teach you how to trade high-impact events with the 15-minute options.

First of all, let’s go through what are high-impact events. High-impact
events are news that impact the markets, either in a positive or negative
way. Normally after the release of this news or data, the market becomes
very volatile, and there’s a greater opportunity to make profit from it.
This is called fundamental trading or news trading.

These events are the principle catalysts to market direction. You first
need to understand why these announcements and data releases affects so
strongly the markets. Then you need to understand if a higher-than-
anticipated reading is bullish or bearish and vice versa.

Only after you have gone through this, you will be ready to start trading
these events. It takes a lot of practice to be able to trade this news. We
recommend novice traders to start practicing with demo accounts because the
environment of the market is so volatile during these releases. If you are
not used to trade volatile environments, we recommend you to start with a
demo account.

So first of all, we need to understand and we need to choose what news are
worth trading. The first news that you need to look for on the economic
calendar is the gross domestic part. The GDP is a strong indicator of an
economy’s health. A better-than-previous reading is bullish for the
currency it impacts.

The second type of news that we will be looking for are job reports. There
are different types of job reports. We have employment and unemployment
rate changes, unemployment claims, non-farm payrolls, which are the
employment numbers minus agriculture in the United States. We also have
jobless claims.

Job creation is an important leading indicator of consumer spending. The
more jobs are created, the more money is spent on wages. Consumer spending
accounts for the majority of the economic activity . . . So the more jobs
are created, the more money is injected to the economy through salaries.

The third news that we are going to be monitoring is the interest rate
decisions. A change of the interest rate affects the entire range of
interest rates set by commercial banks to their clients. So a change of the
interest rate from the central banks affects or impacts heavily on the
interest rates set by commercial bankers to their clients.

When the central banks increase the interest rate, it’s because the
inflationary outlook on the economy increases too. So our base is bullish
for the currency, but most central banks have decided to maintain a certain
level in the interest rates. So most of the times, you will have no change
in interest rates from central banks. This is also bullish for the currency
that it impacts.

The fourth news that we will be monitoring is the consumer price index. The
core consumer price index is a key indicator to measure inflation. So this
is important because rising prices lead to central banks to increase their
interest rates. A high rating isn’t positive for the currency impacted.

So you need to understand this. When we have a higher-than-anticipated
reading on the GDP, it is bullish for the currency pair it impacts. When it
comes to job reports, you need to make the difference between employment
rates and unemployment rates. When we have a higher-than-anticipated
employment rate, this is bullish for the currency pair it impacts. But if
we have a higher-than-expected unemployment rate, it is bearish.

Now that we understand this, we need to select which currency pair to trade
and the direction of the trade. There is some simple way to decide which
currency pair to trade with the news release. If you are waiting for a job
report from the United States, for example, you should trade major currency
pairs, such as the Euro/US dollar, the US dollar/Japanese yen, the
Aussie/USD, and cable. These currency pairs will have the more volume
during this release. If the data released on the unemployment rate change
is higher than expected, it will have a negative impact on the US dollar,
for example.

When a news release has a negative impact on a currency pair, you will
notice an immediate devaluation of said currency. So in this case, if we
have a higher-than-expected unemployment rate change, it will have a
negative impact on the US dollar. So if you are trading the Euro/US dollar,
you will want to buy the Euro/US dollar. If you are trading the US
dollar/Japanese yen, you will want to sell the US dollar/Japanese yen.

Why is that? Because when this currency is the base currency of the
currency pair, it means that the exchange rate will go down. When this
currency is not, it means that the exchange rate will go up. This is easy
to understand because . . . Let’s take the Euro/US dollar for example. We
have higher-than-expected unemployment rate change. This will mean that the
US dollar will devaluate in decreasing value, which will mean that the
exchange rate between the Euro and the US dollar will increase.

I mean, it can be hard to understand, but what you need to know is that
when the currency impacted by the news is the base currency, and you have
that data coming out, it will decrease the value of the exchange rate. When
it has good data coming out, it will increase the value of the exchange
rate.

So this is basically how you trade the news. We’re not going to go through
the empty floor platform on this lesson, but we’re going to go through the
economic calendar. So if you go to Investoo.com, and you go to “Tools”, and
then click on “Economic Calendar”, you will get to this page where you have
the economic calendar for the day or the week. You can choose it right
here. Okay?

What we are looking for . . . First of all, you have the time that the news
is being released, the currency pair that it will impact, the level of
impact, and the event that we are waiting for. You have the previous
numbers, the forecast or the consensus. When the data is released, you have
the actual number. Okay?

So let’s say that we are waiting for an unemployment change on the Aussie,
and we wait for the employment change on the Aussie/US dollar. Here it is.
First of all, we need to look at the previous number. The previous number
is 10.3K. The expected number is lower than the previous number, at 10K. We
got a figure of minus 4.8K, which is much lower than the expected or the
consensus and much lower than the previous number. Because this is the
employment change, and we got a very bad reading, it is bearish for the
Aussie/US dollar.

So when this data is released, you are going to try to buy puts on the
Aussie/US dollar with a 15-minute expiration, or you can buy calls on the
GBP/Aussie, for example. Remember that when you have data coming out, that
it impacts negatively on a currency. If this currency is the base currency
of the currency pair, such as in the Aussie/US dollar case, you will want
to buy puts because the Aussie will have a bearish pressure. It will
devaluate after the release, which means that it will take the exchange
rate between the Aussie dollar and the US dollar down.

So this is basically what you do. You just have to practice and be fast
when you trade these high impact events.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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