There is no right or wrong when deciding to trade in a bullish or bearish market. That is the beauty of binary options trading, you can make money when the economy is doing well or not.
What is a Bullish Market?
In a Bullish Market, investments and investors’ confidence increases. This is defined as a prolonged period in the stock market when investment prices are rising faster than the average increase. The investors are generally attracted to these markets which do reap higher earnings. However, this may be deceiving as prices do often rise much higher than the value of the underlying asset.
How To Trade In A Bull Market
- A Call option would be appropriate at this market stage. This is the purchase of a stock (underlying asset) at a specific price between a specific time. A call option buyer, expects the stock to continue to rise in price.
- Indices and most EFTs follow the same market trends. This is why Calling on an EFT in anticipation that it will rise traders would also follow the same market average for Indices such as the Nikkei. For example if the Nikkei rises by 20% then it is safe to assume that an EFT based on the same index as the Nikkei should rise by around the same amount.
- Calling a Longterm position. This is done in expectation that the price of the underlying asset’s price will rise.
What is a Bear Market?
A Bearish Market has the reversed effect that the bull would have. A 20% drop in the markets of a period of time will be the first indicator of the start of a bear market. Prices often plateau and then decrease. Often investors wait for the approach of the positive bull to make its appearance.
How To Trade In A Bearish Market
- Select the Put option. This is done in expectation that the price of the underlying asset will fall. A premium is the money paid for an option. In a Bear market when the stock price decreases/falls you can exercise the right to Put on the stock at a higher price which will make you profit if the stock moves lower than the strike price.
- A short or inverse EFT, has returns that are the opposite of a particular index (the reverse of a BULL market). For example, an EFT that executes contrariwise to the Nikkei. If it drops about 10% then the Nikkei will rise by 10% – and vice versa
Some investors are too nervous to wait for market recovery and wish to opt on the safe side so they Put in a Bear market as they are scared to suffer the loss of money. They also tend to Call in a bull market because they don’t want to miss any opportunity to make profits. It is safe to say you will make some money and lose some while testing the markets. Make regular investments of fair sizes and wait for the markets to reverse and play in your favor.
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