Trading binary options based on news is a complex analytical process. However, if the forecast is accurate, this method can generate higher profits faster than standard binary options trading. Specific strategies are recommended for this approach, but they are not always effective in regular trading.
In addition, trading based on news requires specific experience and knowledge, which is unsuitable for beginners. This article covers this topic and shows how to trade binary options correctly based on news.
Content:
- Economic Сalendar in Binary Options News Trading;
- Preparation for Trading on Binary Options News;
- How to Choose Currency Pairs for Binary Options News Trading;
- The Most Important Types of News in Binary Options Trading;
- Trading on Binary Options News: Strategies;
- Examples of Trading Using a Breakout Strategy;
- Which Broker to Choose for Binary Options News Trading;
- Conclusion.
Economic Calendar in Binary Options News Trading
News trading on binary options differs because traders must abandon most technical analysis methods and switch to fundamental analysis. In this case, using an economic calendar is essential. This tool provides a schedule of important news releases that impact asset quotes:
Technical analysis loses its effectiveness because, in the current conditions, prices change under the influence of many traders (the crowd). Because of this, volatility increases sharply, and the price changes unpredictably. Therefore, signals from indicators for binary options lose their power. Despite this, you can still make money from the news. With the right approach in the current conditions, it is possible to profit in a relatively short period. However, traders must consider that transactions become highly risky after such events occur.
Due to the high risk, some traders refuse to trade binary options based on news, trying to carry out trading operations in comfortable conditions at predicted prices and with a stable, pronounced trend.
Returning to the economic calendar is an indispensable tool, as it provides traders with a lot of helpful information to make a profit. The calendar shows:
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news release time;
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the country to which the published indicators belong;
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importance of news;
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news title;
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fundamental indicators (past, present, future).
Thanks to this list, you can select a news release that is highly likely to generate income.
Preparing to Trade Binary Options News
This type of analysis begins with studying the history of a specific news story. You can get similar information by clicking on the indicator. For example, let's take the "Employment Change" in Canada for February:
Note: In this article we used the economic calendar from Investing .
Clicking on this news will open a new page with a description of the news, where you can find out what it means, as well as other important information about it:
Below the chart you can find historical data for the news. When studying this data, you should pay attention to the actual value, forecast and previous value. When analyzing the table above, it is necessary to compare the forecast with the value that was ultimately achieved. In particular, the top line indicates that the previous figure was 200.1K, the actual figure is 336.6K. But, according to the forecast, this parameter was supposed to reach 160K:
According to the predicted result, this figure should have decreased from 200.1K to 160K. As a result, the number of employed people, on the contrary, increased significantly. That is, both the expected and actual values had a positive impact on the Canadian dollar and vice versa for the US dollar. And since in the USD/CAD currency pair the base currency is the US dollar, the chart of the pair showed a fall:
For ease of perception, these parameters are colored green, red and blue. A rise in the indicator is colored green, a fall in red, and the forecast always remains gray.
As an example of what situations can happen, consider news such as the number of US non-farm payrolls. In November 2017, this value was 18K. Experts expected growth to 310K, but the actual value was 261K:
That is, the actual figure turned out to be lower than predicted. But in reality, the number of employees increased from 18K to 261K. That is, the dollar exchange rate should have strengthened. The price in the EUR/USD pair first went up. Traders reacted differently to the published event, since the actual value turned out to be lower than predicted. But later there was a rapid correction, and the quotes went in a different direction:
This suggests that novices may be blind to how metrics should be interpreted and will only look at the colors when they should be looking at the metrics themselves.
It is important to understand that when trading binary options based on news, future releases are not always published correctly. This is evidenced by the indicators for June 2, 2017 and October 7, 2016. In both cases, an increase in indicators was predicted, while, on the contrary, it decreased. These events led to a decrease in quotes:
Based on this information, it is also recommended to compare previous and actual values during analysis. Thanks to this information, it is periodically possible to understand the current direction of the trend in relation to a specific asset. But you should do this with caution and collect complete statistics of news indicators before use.
How to Choose Currency Pairs for Binary Options News Trading
To successfully trade binary options based on news, focus on the following currencies:
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USD
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EUR
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CAD
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CHF
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AUD
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GBP
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JPY
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NZD
Trade currency pairs that include at least one of these currencies, as they are key players in the global economy. Remember that the U.S. dollar heavily influences some currencies while others correlate negatively. When opening trades, pay close attention to news releases related to the U.S. dollar, as such events can impact the entire market.
Success in binary options news trading directly depends on the trader's ability to analyze several factors. In particular, when forecasting prices, it is helpful to take into account technical analysis factors:
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supply and demand;
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trend;
When publishing several events, it is essential to "cut off" the less important ones and consider the more significant ones in the analysis.
The Most Important Types of News in Binary Options Trading
If you trade binary options based on news, you should know which reports to pay special attention to. Here is a list of those that could most affect prices:
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Change in the number of people employed in the non-farm sector. The higher the number of people employed, the more a country can produce in exports and other goods, directly affecting GDP.
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Changes in the interest rate of the central bank (US Federal Reserve and other regulators) affect the entire economy of the country. Raising rates reduces inflation, but it also slows down financial activity. Reducing the rate contributes to the growth of lending, which positively affects business activity.
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Retail sales. The indicator determines the total volume of household expenditures in a particular country.
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Inflation. This indicator determines the nature of changes in the country's economy. When inflation rises, consumption decreases, negatively affecting the flow of money and reducing budget revenues. Because of this, quotes are falling. The opposite situation leads to an increase in the exchange rate.
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Unemployment Claims Data. The state does not realize its full economic potential with low population employment.
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Business Sentiment Index. The indicator reflects current business activity and the expectations of enterprise top management for the projected future. An increase in the index contributes to the growth of the national currency.
The importance of these indicators varies depending on the economy's state. In particular, if analysts expect an increase in the number of unemployed people, a news release about this is more critical than data on changes in the interest rate.
Trading News on Binary Options: Strategies
Traders use different strategies to trade binary options based on news. However, volatility trading is the simplest and most popular method that many traders use.
Despite the complexity and the need for preparation, this approach can be the fastest and most profitable. With a properly structured strategy, there is little room for making mistakes. For successful trading, you should choose news indicators that maximize volatility and "push" prices in any direction.
Examples of such news:
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Number of people employed in the non-agricultural sector
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Interest rate change
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Unemployment rate
But you cannot open trades if you expect the simultaneous release of two or more news events (which is rare) that contradict each other. In such conditions, the price will most likely rise and fall, leaving long shadows on the candles and preventing the asset from moving in one direction.
In this approach, traders choose the option type based on the direction of movement: up – Call, down – Put. You can also use non-standard binary options, such as "Range." We recommend opening trades immediately after the news release or when the market reacts to key indicators. The expiration period should not exceed 30 minutes. For moderate-impact news, the expiration should be no longer than 15 minutes.
Examples of Trading Using a Breakout Strategy
For an example of volatility trading, consider the release of data on changes in employment in the US non-farm payroll sector. In the calendar you can see that at this time, along with this news, other news in the United States is being released, but you should not pay attention to them, since they are all quite weak compared to the news we need. The forecast for the number of employees was 150K. The previous figure was 510K. Expectations turned out to be much higher than reality, but at the same time lower than previous ones and amounted to 467K. This means that there will potentially be less gross output produced, which will negatively affect the dollar. So we should expect the currency to fall:
Acting within the framework of the strategy under consideration, you need to choose a pair with the dollar. It can be any pair, such as USD/JPY, but it is best to choose EUR/USD as it is more volatile. Since the dollar is not the base currency in this pair, we will need to use the CALL (“Higher”) option. Why? It’s simple - since we predicted a fall in the price of the dollar, and when paired with the euro it comes in second place, then in this case, when the dollar falls, the euro rises. If the dollar was in first place (USD/EUR), then we would see a fall on the chart. The expiration period in this case, as mentioned earlier, should be equal to 30 minutes. The chart below shows the reaction to the news and our potential trade:
As a result, this news gave a strong impetus to the price and the growth was more than 100 points, and even after 30 minutes the price continued to rise.
Other news is traded according to exactly the same principle, but it is important to choose strong news.
Which Broker to Choose for Binary Options News Trading
Almost all brokers that provide binary options trading support this approach. However, it is best to choose brokers that allow instant trade execution.
These companies include Quotex and Pocket Option. With these brokers, transactions do not require confirmation, reducing the time needed to open a position. Additionally, they allow trading options even in high-volatility conditions.
Another advantage is the ability to add trading assets to the panel, which allows you to switch between them when using different currency pairs for trading. Additionally, the Quotex broker offers fixed odds for EUR/USD and GBP/USD at certain times, which do not change.
Conclusion
Trading news on binary options is a way to make money on currency rate changes quickly. But this approach is high risk. Therefore, you can start this type of trading with fundamental analysis knowledge. You should also take into account that several publications can impact multiple financial assets at the same time. To avoid mistakes, open positions only when a crucial message is released.
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