Every investor develops his or her own trading strategies over time in accordance with their experience and particular financial goals. Some prefer a more fundamental method, following socio-political news and economic events, while others follow a more technical analysis of market trends and movements. Regardless of what your particular trading preferences and financial goals may be, there are certain tried-and-true binary options strategies with which every investor should be familiar.
The Knock-On Effect
The Knock-On Effect utilizes established correlations in the market to predict how a single event might affect the value of multiple assets. A strong correlation, for example, that is often monitored by investors is that between the USD and the price of gold. Because gold is always traded in USD, its value greatly depends on the health of the USD. The release of the Non-Farm Payroll (NFP) number every month, which indicates U.S. employment figures, is used to gauge the strength of the U.S. economy, greatly affecting the price of the dollar. Therefore, if the NFP is extremely disappointing, an investor can place a “call” option on the EUR/USD currency pair (expecting the dollar to fall against the Euro), and another “call” option on gold (figuring that demand for this safe heaven will increase).
The Straddle: Although asset prices can vary dramatically, there are certain lines on a price graph at which technical analysts expect the price of an asset to bounce up after a decline (the support level), or reverse following an increase (the resistance level). The Straddle is a binary options strategy that can be employed once strong lines of support and resistance have been identified for a specific asset. When the price of an asset approaches its support line, it’s time for an investor to place a “call” option; conversely, when the price approaches its resistance line, a “put” option should be placed for a given expiry.
Trend Reversal: There are two kinds of trends on a market chart: an uptrend and a downtrend. An upturn occurs when the general movement of the price is upwards, with the successive high and low points reaching higher and higher on the price line as time progresses. On the contrary, a downtrend records the general downwards movement of an asset, with each successive high and low points reaching a lower price on the graph. Trend Reversal is an options trading strategy which identifies the point at which a trend reverses its progress into the opposite direction. For example, the first clue that an uptrend might be reversing is a high point that does not exceed the peak of the previous high point. When the graph falls from that point to a value lesser than the previous low point, then Trend Reversal can be confirmed and the price can be expected to fall further.