Binary traders must have an understanding of the market and its underlying concepts if they are to make big profits.
Primarily, an investor seeks options and ways to make the best investment and assure himself of a profit. Even if there is not a 100% guaranteed strategy an investor needs to understand the concept of Binary Option trading. Every new binary option trader looks for the best binary option trading strategy to make the maximum profit.
There is no strategy that will guarantee assured returns but there are definitely some ways that can be utilized by beginners as well as by experienced traders in order to increase the profitability of their investment and generate a consistent monthly income. One of the most popular trading strategies among traders is the Market Pull Strategy or the knock-on effect strategy.
The concept of the Market Pull Strategy is that movement of one option will have a knock-on effect on another option. There are strategies involved and the implementation of those strategies are possible with a reasonable degree of certainty about the outcome.
One factor that makes binary options more profitable for traders compared to Forex trading is the number of options one can invest in. Unlike Forex where someone can only trade in currency pairs, in binary options you can trade in 4 types of assets, and those are: currencies, stocks, indices and commodities. Additionally, traders can trade in correlated assets that double the number of the potential trade options available. Correlation in the binary option occurs when the financial activity of one asset affects the financial activity of other assets.
It is clear that in order to make proper use of this strategy a trader needs to understand correlations in the market effectively. This is where experience comes in, since finding correlations can be difficult. However, with knowledge and understanding of binary trading tools and techniques, anyone can implement the Market Pull strategy.
It will be easier to understand the concept of Market Pull Strategy with an example.
The Gold and USD/US Dollar Gold are inversely correlated. This means the rise in value of one tends to decrease the value of the other. When there is increase in the flow of USD from the US Federal Reserve the signal that is sent to the investors is that the dollar will decrease as there is a higher amount in circulation. This in turn boosts the purchase of gold as the increased flow of dollars makes the purchase of commodities, traded in USD, attractive. The Canadian Dollar (CAD) is also an example of such a correlation. CAD is correlated to the Crude Oil price positively. This means that when the price of Crude Oil rises, the CAD follows and vice versa. There are many other currencies that follow the same correlation like the New Zealand Dollar (NZD) and the Australian Dollar (AUD). These currencies rise with any increase in prices of copper, gold and silver.
The same rule applies to companies and their stocks. If the stock price of Company A rises then the price of stocks of the companies closely related to Company A will rise. The competitors of Company A will see a fall in their stock prices.
The knock-on strategy is time sensitive but the safety and effectiveness of this technique is worth the commitment. The best thing about knock-on effect strategy is that it is based on both fundamental and technical analysis. Interestingly, with time, this strategy becomes a learned behavior and is practiced automatically. The potential of this strategy should never be underestimated by a trader. With proper implementation a trader can become immune to decision-making pressure and highly intuitive about strategies and decisions regarding the price prediction of a commodity. For long-term profits, a trader can further combine this strategy with other hedging strategies and maximize long-term profits.
By understanding the correlation and utilizing the concepts of Market Pull Strategy you can maximize your profits. However experience is what counts for a thorough understanding of various market indicators.