Keep Your Eye on the News: Key to Successful Trading
Many traders perceive that they can trade forex or binary options just by looking at the charts and understanding the numbers. It is true that technical analysis is a very important component of many trading strategies. However, it’s also crucial to understand the fundamentals and staying up to date with the latest tips and analysis.
What is Fundamental Analysis
Fundamental analysis means understanding the events that will affect different prices. For example, if you are trading on the USD-GBP currency pairing, you may be highly interested in the Non-Farm Payroll results, the GBP figures and signals for economic growth in the US and UK. With all currencies, you’ll probably be interested in the interest rates of the countries and maybe news coming out of the central banks. When you’re trading company stocks, you may be more interested in industry news, competitor analysis and financial reports from your target companies.
All of these sets of information have the capacity to influence the prices of assets and could potentially cause reversals that otherwise you would not identify in the charts.
Have a Binary Options Calendar
It’s a good idea to have a binary options calendar so you know what events are coming up that may influence your portfolio. Indeed, without understanding what is happening over the course of the day, or week, it becomes very difficult to make valid predictions. Binary options are about taking conviction positions so that you can make the high returns available. Conviction positions normally involve taking a stance on fundamental news and using the technical analysis to support your entry and exit points in terms of the binary options you choose to engage with.
Sources of Information
As well as using a binary options calendar, you could subscribe to certain web feeds, newsletters and could follow certain people on twitter. The key is to ensure that you know the pertinent information of the day and not all the information. There is a concept that’s known as “paralysis by analysis”, where you have so much information that it makes it impossible to make a good trading decision, and to let go and start trading. It’s important that you have predictive power over your trades but it’s impossible to be 100% “sure”. You have to assess risk in each trade in order to get profitable outcomes on enough trades to be profitable.
Your Trading Strategy
The amount of news that you keep an eye on will depend on your trading strategy and the assets that you engage with. The shorter the time frame of your trade, the less you have to pay attention to news, and really you’ll be ensuring that you stay out of the markets when news events are playing out. If you’re day trading longer trades then it may be the case that you are basing your whole trade on your opinion of a news release prior to its release.
It is of course important that you understand whether the trend is continuation, reversal or oscillation at the current time, in order to make future predictions. This will be viewed in the technicals but most often will be driven by the fundamentals, and so it’s important to have them in mind.