Strategies for Currencies
Currencies are one of the most popular and most used asset types to invest in a boundary option. This article will present you with three of the best trading strategies for currencies, so you can make money with binary options.
Trading strategies for currencies
In general, there are two defining factors for trading currencies:
- Currencies are traded all day from Monday to Friday.
- Currencies are not only influenced by the supply and demand created on a stock exchange, but also by supply and demand created by fundamental influences such as imports, exports, and people exchanging currencies privately.
You can use both factors to create the perfect trading strategies for currencies:
Trading long term trend lines
Binary option are short term investments. Therefore, you cannot profit from the typical long term trends in currencies directly. You can, however, profit from them indirectly. Long term trends have a significant influence on the market. This influence translates to shorter time frames: When a long term trend line dictates the market to turn around, you can trade this reversal on a shorter time frame.
Find the trend that will take the market to the trend line. Then look for signs of a new, developing trend in the opposite direction around the trend line of the long term trend. As soon as you find that trend, invest in that direction with a high / low option with a medium to long expiration time. Such a strategy will create secure but few signals per asset. Therefore, it is absolutely necessary to monitor more than one asset.
Also, search for long term trends on multiple time frames: A long term trend can occur on any time frame from an hourly time frame upwards. Make sure to also check daily charts.
Trading the news
Currencies are heavily influenced by fundamental factors. News about a change in an important fundamental factor will have an immediate, significant impact on a currency pair. When a central bank increase or decrease its base rate or prints new money, for example, the market will react strongly. As a trader you can use these events to win a binary option.
One word of caution, though: When news hit the market, the market often reacts in unforeseen ways. Sometimes, good news can weaken a currency because traders expected even better news. Sometimes, bad news can strengthen a currency because traders expected even worse news. Therefore, you should not invest on the news and what you think they imply, but on how the market reacts to the news. Only invest in a high / low option or a touch option, when the market has shown you where it will move.
Since you do not know which way the market will react but know for sure that the market will react strongly, scheduled news can also be a great opportunity to invest in a boundary option.
Trade divergences in momentum indicators
Divergences in momentum indicators, such as the relative strength index (RSI), can give trend followers an early signal for a weakening trend. The RSI creates a divergence when the market forms a new extreme (high or low) without the RSI forming a new extreme, too. This is a major signal for a weakening trend.
Trend followers can use this signal to anticipate an impending reversal. Stop investing in the current trend, wait for additional signs of a reversal, and then invest in the new movement. With a strategy like this you can win a high percentage of your currency trades.