The financial markets are interconnected. The stock market can go one way and the gold price chart can move in another direction. and if you have traded several markets prior to coming to the binary options markets, you will find out that trading knowledge acquired in one market can give you an edge in trading another market. It doesn’t matter if you are trading the stock market, binary option market or forex; you will find out that there are lots of similarities that tie these markets together. Take a look at these scenarios painted below:
We will use the boundary trades (In/Out trade variety) to illustrate this point. In the boundary trade, the binary option trader is betting on whether the price of the underlying asset stays within a given range over a time period, or will eventually break out of that range before the date of expiration of the contract. In order to make a correct trade call, he will have to employ different methods of technical analysis. Pivot points analysis, which is also based on whether the price action of the chosen asset (either currencies or stocks) will stay within certain levels of support or resistance or break these levels, is one such analysis that can be used. After performing a pivot point analysis, the results of the analysis can be extended to the boundary trade. If the pivot point analysis was properly done, this binary options trade is likely to succeed. This is one instance where knowledge of a type of analysis that is more commonly used in the forex market can be applied to the binary options market.
Some currencies correlate well with some of the commodities. The US Dollar, Canadian Dollar and Japanese Yen all have a correlation with crude oil prices. More specifically, we tend to see an upward swing in the EURUSD when oil prices spike. As such, if a trader decides to trade a binary options type such as the Touch/No Touch trade variety on the EURUSD, he can use the price of oil as a guide in deciding where to set a strike price for either a Touch or a No Touch trade.
For example, the price of crude oil spiked on February 27, 2012 on threats by Iran to cut oil supply to parts of Europe. This would impact even junior mining companies, because it could move the gold prices. This led to a rise in the exchange rate of the EURUSD. In order to play this on the binary options market, a trader can set a price barrier for a Touch contract somewhere between the market price and the nearest resistance point, or set a No Touch price barrier somewhere below the nearest support point.
These scenarios typically show how knowledge of how to trade the underlying assets in their respective markets, can lead to positive trade calls in the binary options markets.
As a trader wishing to make money from binary options, it is advised that you study the underlying assets you wish to trade and understand how to analyse them in their respective markets.