How to select an asset to trade
Choosing the right asset to trade can help traders significantly boost their trading profitability. Learn how to select an asset in binary options trading.
Selecting which asset to trade in the binary options world can be quite a task since most brokers, such as Banc De Binary, offer traders up to 200 tradable assets on their platforms. Generally, no asset is better than the other, but choosing the wrong one to trade at the wrong time, can result in significant trading losses. Traders need to understand the important characteristics of the main asset classes as well as the best times to trade each of them.
Currency pairs are the most popular tradable assets in the binary options market. This is because the forex market is the largest financial market in the world with a daily market turnover topping $5 trillion. Currency pairs also experience high and regular volatility, which means that trading opportunities will be present at all times. The best time to trade currency pairs is when economic news is released as this generally causes currency pairs to fluctuate.
The most popular currency pairs are EURUSD, USDJPY, GBPUSD, USDCAD, AUDUSD and NZDUSD.
Stocks are also a popular asset class for most traders. Binary options traders can trade stocks such as Apple, Google, AT&T and Microsoft. The best time to trade stocks is when earnings reports and other relevant corporate news are released. Stocks usually experience much movement during such times.
The commodities available for trading in the binary options market include Cotton, Gold, Oil, Platinum and Silver. The prices of commodities are mostly affected by economic news as well as factors that influence their physical demand. For instance, a meeting of OPEC countries will spur volatility in the price of oil.
Indices measure the general performance of various asset classes, usually stocks of a particular country or region. Indices are electronic markets and they are open 24 hours a day. Indices are usually very volatile because they represent a group of stocks rather than a single stock. The best time to trade an index is when there is a major news release relating to a stock or stocks within the index. Some of the indices available for trading in the binary options market include: Dow Jones, S&P 500, FTSE 100, Nikkei 225 and NASDAQ.
After understanding the characteristics of each asset class and the best time to trade each one of them, traders need to consider factors such as:
The Prevailing Market Condition
In binary options, there are 2 main market conditions: a trending market and a sideways market. A trending market is characterized by the price making strong and sustained movement in one particular direction. In a sideways market, though, there is no clear direction and the price oscillates between areas of support and resistance. For traders, it is important to select assets whose prices are trending. It is easy to find good quality trades in a trending market because the strategy is to place orders in the direction of the dominant trend.
The Economic Calendar
The economic calendar is a tool that lists scheduled economic news releases that may have an impact on the prices of various financial assets available for trading in the binary options market. Banc De Binary is one of the few platforms that have this tool available on their site. Traders should take a look at the economic calendar, before each trading session, to view which assets are likely to experience increased volatility. They can then develop a strategy to exploit the expected price movement of these assets.
Technical analysis can help traders identify assets whose prices are at idealpoints for placing orders in the market. Technical analysis helps traders predict future price behavior based on historical price movement. For efficient technical analysis on assets, traders need to sign up on platforms that have comprehensive technical analysis tools. An example would be Banc De Binary where traders have access to a wide variety of technical analysis tools. The most common technical analysis tools traders use to choose assets to trade include: Trendlines, Moving Averages, Pivot Points, Fibonacci and MACD.
Understanding the correlation of pricescan help traders select good assets to trade. Correlation is the degree to which the price of one asset relates to another. For instance, EURUSD has recently shown positive correlation with NASDAQ. The prices of both assets tend to move in similar directions. If a trader sees the price of NASDAQ drifting higher, he can decide to trade EURUSD by placing Call orders with the expectation that the asset correlation will stand. The trader can also avoid placing similar orders on those assets because this amplifies his trading risks.
Although the binary options market is open 24 hours a day, there is always an ideal time to trade any particular asset. Traders can select the asset to trade depending on their time zone or availability. When the London market is open (0800hrs-1700hrs GMT), the ideal assets to trader are European currency pairs as well as their stocks and indices. When the New York market is open (1300hrs-2300hrs GMT), the best assets to trade are American stocks and indices whereas Japanese and Australian stocks, currency pairs and indices are ideal for trading when the Tokyo market is open (0000hrs-0900hrs GMT).
There are generally two types of trading styles: Aggressive and Conservative trading.
Aggressive traders are driven by the profit motive and they usually place more trades in the market. They also prefer trading shorter chart timeframes. Such traders should select volatile assets that post big price movements daily, such as EURUSD, USDJPY and Oil.
Conservative traders, on the other hand, seek to minimize their trading risks as much as possible. They do this by placing fewer trades in the market and trading off higher chart timeframes. Such traders should select less volatile assets such as EURCHF and stocks.
Traders should learn to choose the right asset to trade, at the right time and using the right strategy. This will help one tominimize their trading risks and to increase their potential profitability in the market.
This was posted in Bdaily's Members' News section by Boris Dzhingarov .
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