If you have entered the exciting world of binary options trading in search for a much needed boost to your income then you need to know how to avoid making what is perhaps one of the most commonplace, yet costly mistake that many binary options traders usually fall into the trap of committing.
Proving they are serious about their investment efforts and wanting to increase the chances of their trade expiring in the money, most binary options traders engage in the study of geopolitical and economic news, because they understand their significance in creating conditions of volatility in the markets, particularly the forex price movements, leading to the creation of potentially lucrative investment opportunities.
This is a very noble and respected effort and interpreting news events correctly can indeed lead to a winning binary options trade, however, the devil is always in the detail. The most common mistake committed by binary options traders is that they focus on trying to predict the outcome of a much anticipated event, e.g. the announcement of important economic data and then move on to place a relevant trade shorty before the actual piece of news is released.
Alas, this often leads to catastrophe, as correctly predicting whether a piece of news is positive or negative does not mean that the market reaction to it will be the one you envision. In short, the subsequent price action in the markets does not necessarily correlate to the news being released, in fact it rarely does, while often a piece of “good news” might still be followed by lower market prices, and a piece of “bad news” might well lead to a price rally.
Thus, even if you predict the news right you still end up with a failed trade and an empty pocket.
This reason this happens is because the big industry stakeholders, those who shape price movements, usually buy well before the release of anticipated news and not after and thus the prices after the event have the news impact already factored in them. In short, trading the momentum of market news will be a losing strategy if it is based on attempting to predict price actions.
Instead, your chances of completing a winning trade are boosted significantly if you learn to correctly react to price movements. Consequently, the most potentially profitable and simultaneously least risky method of “trading the news” is to actually wait for the news to be released and then enter a new binary option trade, but only after seeing and taking into account the actual price reaction to the news event.
Placing trades before the news based on educated guesses, would be little more than gambling and inevitably wrong, thus a costly mistake to be avoided.
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