It is important to attempt to minimise your risks when participating in binary options trading in order to protect your profits and avoid bankruptcy and excessive losses. However, sometimes if you minimise your risk, you are also minimising the profits that you can achieve. Occasionally, it is worth your while, therefore, to take the chance of increasing your profits by trying something a little riskier than usual, especially if you have enjoyed an especially good trading month and can therefore afford to take the extra risk.
Although you may think that you should minimise your risks by avoiding trades during times when the market is volatile, in fact sometimes it is worth giving it a go, and here, you will find some helpful advice about how best to place binary options trades in a volatile trading environment. Although this is not the best option for everyone and should not be something that a trader enters into lightly or too frequently unless they are comfortable with risking a lot of money, it is certainly possible to make an excellent profit if you are able to correctly predict the price movement that you chosen asset will make.
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When is the Market Likely to be Volatile?
There are certain times when the market is more volatile than others. For example, just before the release of certain economic news, the market will become a lot riskier. One example of this is when the United States issues their NFP (non farm payroll report). Volatility in the markets also increases when factors such as interest rate decisions, the NFP and other political and economic events are taking place.
During these times, the markets are described as volatile as, as well as the standard algorithmic trading which takes place, the changed market psychology which occurs at these times must be taken into account too.
The economic calendar must be held in mind when looking for volatile periods in the financial markets. Its release will take place at least a week in advance so traders know what they can expect regarding any forthcoming news or expected volatility. Releases will take place on either a quarterly or a monthly basis dependent on the country in question, and this will enable you to select the correct expiry date for your traded option.
Looking at the economic calendar at the weekend will help you to identify an expiry date to begin your trading week. Usually, Mondays and Tuesdays will be less volatile as on those days, the market tends to go through a period of consolidation. Thursdays and Fridays are the most important trading days as at that time, the central banks are establishing their interest rates. These are also the days when jobs data, CPIs of major economies and press conferences are held, and volatility is sure to be higher on those days.
Volatility also changes throughout the year, with liquidity increasing and markets remaining quite static during the latter half of December when there are a lot of holidays. At that time, it is best to look for divergences in overbought and oversold levels before executing a trade. Alternatively, you could choose to trade one-touch options or trade the boundary.
How to Trade a Volatile Market
If you decide that you want to trade during a volatile market, you should never embark on it without coming up with a thought out strategy. There is certain information which you can use to your advantage. An example of this is being aware that in the 24 hours before the NFP release, very little trading will take place, so it is possible to trade on a smaller time frame, such as a five minute time frame, and achieve success in those trades. You can also use an oscillator, like the RSI, which will enable you to identify any oversold areas in order to purchase call options, or areas that are undersold where you will be able to execute put options.
Once major data or economic news such as the NFP have been released and the market becomes more volatile, it is then possible to begin trading on a larger time frame with a longer expiry date in order to catch any corrections while the market makes its transition back to its normal trading conditions.
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