When it comes to asset types used in boundary options, few are as popular as currencies. In the following article, we will introduce you to three profitable binary option strategies that are specially geared towards currencies.
Trading strategies for currencies
Trading in currencies is defined by two unique hallmarks:
- You can trade in currencies around the clock, every working day
- The price of a currency is not only determined simply by supply and demand, such as is the case with a stock, listed on a stock exchange, but also external forces outside the market place such as trade balances, economic indices and so on.
These two defining factors can be used to generate solid strategies for currencies in binary options trading.
Trading long term trend lines
By definition, binary options are short-term investments. For this reason, it is impossible to use them to profit from a conventional long-term trading strategy in currencies. However, the great influence that longer lasting trends have on the market is also reflected within shorter time frames. One example of this is when a long term trend causes the market to turn. This sort of reversal is an opportunity to trade in the short term.
You do this by identifying the trend that will steer the market to the trend line. Thereafter, you should be on the lookout for a trend developing in the other direction, close to the trend line for the longer term trend. Once you spot such a trend, you invest in the direction it indicates with a high / low option. Use a long to medium running time. This sort of strategy does not produce many signals for each asset, but such signals will be quite reliable. For this reason, it is paramount that you follow several assets, not just one.
Another smart move is to keep an eye open for long trends in more than one time frame. Remember that a long term trend can appear on time frames of one hour and more. You should also follow the daily charts.
News and binary currency trading
The prices of currencies rely to a great extent on basic circumstances. Changes in crucial financial indicators can have a very great influence on a currency pair. When news break of events such as a central bank altering its base rate or how much new money it issues, you will see a considerable reaction in the currency markets. This means that you can benefit from such events as a binary trader.
You need to be cautious here. The way the market will react to an event is in no way set in stone. It can happen that good news will cause a currency to lose value because traders had expected the news to be even more uplifting. Conversely, bad news that isn’t quite as disastrous as traders had feared, can cause the markets to rally. The lesson here is to trade not on the news itself, but how the market will react to it. Smart traders wait to invest in touch options or high / low options until they have ascertained where the market wants to go.
You cannot know with anything like certainty exactly how the market will react to a major news event like this. However, you do know that there will be a strong reaction. This means that big news make for great trading opportunities in boundary options.
Deviations in Momentum Indicators – spotting a weakening trade
When deviations appear in momentum indicators, for example the relative strength index (RSI), this can give trend-following traders an early indication that a trend is weakening. Such a divergence is created when the markets produce a new extreme, be it high or low, but no such extreme is formed by the RSI. This situation is a clear signal that a trend is getting weaker.
This means that traders who follow trends can rely on this signal to predict an upcoming reversal. They will stop investing in the continuation of the current trend. Then wait for further indications that a reversal is due, and then invest in this new development once it occurs. Such a strategy can be used to make binary currency trades with a high degree of confidence, and a solid win ratio..