Crappy Trading Conditions You Should Avoid
Crappy Trading Conditions You Should Avoid
With the advent of computers, the Internet, and the ability for private individuals to trade online, investing has become something that almost anyone can do. Gone are the days when the only way a person could interact with stocks, commodities and currencies was if they were already wealthy and had huge reserves of cash to play with. Now, even if you’re just an average person somewhere in Asia, Europe, Africa or the American continents, as long as you have some money you’re willing to invest, and an Internet connection, you too can get involved in trading, and make a profit.
However, for many this also means wading into a new world of rules, expectations and risks, and there’s a lot to learn. Even with something that is comparatively simpler, like binary options trading, stripping out all the understanding and strategy behind investing still leaves traders with a 50% chance of losing their money.
So how do you avoid this? One of the safest ways is to try to restrict your trading to when the market conditions are favorable. But if you’re new to binary options trading, you might not know when the conditions are in your favor and when they are against you. Here’s are some market conditions you should try to stay away from.
Stagnant Or Tight Market
One of the basic tenets of binary options trading is that you make money when your prediction about a price rising or falling is correct. This means that when you see a big spike in a company’s stock, or see the economic problems of a country driving its currency down, there is big, visible movement in the price. These are excellent trading conditions where you can reliably make a profit.
As to be expected then, a poor time to attempt to trade is when there is not much movement in a price at all, or the movement present is so small that it’s nearly flat. For a certain type of traditional trader, this is actually a good time to be buying up assets, since this means the market is predictable. For a binary options trader however, this is a very poor trading environment.
We see this kind of contrast most often in the commodities market. For traders that are buying steel, oil or wheat to actually use for real world, industrial or commercial purposes, a flat market may be desirable. That stagnancy can also be interpreted as stability. Someone that needs wheat in order to use towards the creation of breakfast cereal, for example, benefits from knowing that the prices of wheat and other grains will remain stable and predictable for some time.
For binary options traders however, this very tight movement in only small increments up or down in short periods of time makes it extremely difficult to make reliable, profitable trades. It’s still possible, but it requires the trader to very closely monitor the market, and react extremely quickly to changes in order to prevent a loss of investment.
Compare this to the opposite, where a sharp drop in a stock’s price over the course of a few days allows a binary options trader to aggressively make several trades per day that all result in profit. Trends with a longer duration and constant movement are much more profitable. Prices that don’t move much demand huge amounts of time from a trader constantly monitoring the situation. It’s a very poor trading environment, and while profit is still possible, it may not be worth the time and effort involved.
One of the best things about binary options trading is that even in traditionally bad conditions, such as plunging stock value, or a currency dropping in price compared to the US dollar, these are still conditions that a binary options trader can profit from. However, that profit is only possible if the trader correctly predicts the movement of the price.
So, in the case of, for example, the Japanese Yen dropping value due to an economic crisis, this is a constant, downward trend that is going to carry on for quite some time. Smart traders will take advantage of the fact that the Yen’s value will predictably drop for a duration of time, and start making trades to profit.
However, if you have something a little less predictable, such as an ongoing controversy with the executive of a large company, and that company going to court, things become less stable. As new developments come out of the news reports on the state of the court case and how this affects the company, traders may see an unfavorably volatile market. Prices on the stock may move up and down very rapidly with each new announcement.
In this situation, where the price of a stock can surge upwards or downwards at the turn of a new development, this puts binary options traders at risk. Hearing the news of an impending conviction in court, or some new corporate scandal may cause prices to drop, and the logical move in such a situation is trade with predictions of downward price movements. However, if new news comes out that is positive just a few minutes after a trade has been made, and prices start to climb again, that trade is now likely to result in a loss.
As binary options trader, you don’t want to be trading in a situation where the price is so volatile it could suddenly reverse its direction in the time it takes for you to select a trading period and make a trade. This is even more important for traditional trading, or Forex or even CFD trading, where there is no fixed loss, and what you could lose on the trade could conceivably be more than you invested.
Good conditions for binary options traders are trending movements in prices, or fluctuations in price both upwards and downwards that have understandable and predictable causes. Under these circumstances, it’s much easier to make a prediction about a trade and have that prediction bear out exactly as you’d hoped.