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Range binary options trading strategy based on news

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As you know, range options trading strategies are built on the basis of technical analysis, as well on the basis of fundamental analysis. Strategies based on fundamental data include news trading strategies. In this article, you will learn what news should be used in range options trading and why some sources of news aren’t effective.

This strategy is based on the effect produced by news or events. We know that after the release of important news or events, volatility increases dramatically. For example, after data on inflation, GDP growth, and unemployment, volumes of currency pair trading rise sharply due to a sudden change in the price of the asset. News of mergers and acquisitions affect the value of shares. News of natural origin often has an impact on the price of commodities.

Important news and events that may have an impact on the financial market are marked in the economic calendar. Economic Calendar is the tool of traders where the information is already filtered and ranked in order of importance to the market.

Economic Calendar allows you to keep track of not only time data and their significance but also the dynamics of this value compared to the previous term, with a corresponding effect for the market. For example, if the index of German economic sentiment is expected to reach 4.8% and comes in at 4.5%, this will have a negative result on the European currency. Such an economic calendar is present on almost all broker sites.

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Statistical data have an important impact on the value of the option’s asset. While waiting for news the market picks up, price movement can be chaotic because it’s not known yet the final value of the index. Only after the news does the price movement get a clear direction.

How to use the news when trading

To use news range options trading strategy, it is necessary first to highlight the news that somehow can affect the price of your option. If you buy options GBP/USD, you should pay attention to the fundamental data from the UK and the US. If you are trading shares of Apple, you need to closely follow what is happening in and around the company.

Here's a hint: if you want to use a range trading strategy based on the news with currency pairs, you should use such currency pairs as EUR/USD, GBP/USD, USD/JPY, and USD/CAD. These currency pairs are most effective when trading on the news.

In addition to the effects of the news, you should take into account the time of the news. If you buy options EUR/GBP, it is logical that the statistics on this pair happen during the night in New York.
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Another hint concerns to what news you should pay attention. If you are using a news strategy to trade range options of currency pairs, you should pay attention to the following:
1. Central banks meetings
2. Decisions of central banks in terms of interest rates
3. Data on retail sales
4. The data on the labor market (unemployment, changes in the number of unemployed, the number of jobless claims, changes in the number of people employed in non-agricultural sectors, the non-farm payrolls)
5. PMI and CPI indices (indices of activity in industry and services)

This news causes the greatest dynamics in the market. After this news, the price often breaks the range set by the broker.

It should be noted that sometimes the expectation of the news has a greater effect on the market than the news itself. Conversely, the effect of the news can be ignored by the market if this news was delivered along with other, more important news. For example, in the same day the results of a meeting of the Federal Reserve and the data on business activity are both released.

How to trade on the news

Let’s see the chart for pair EUR/USD. In anticipation of weak data on the level of GDP in Germany, the pair EUR/USD dropped, but after the release of more positive data than expected, the pair EUR/USD showed significant increase: in just two hours, it increased by 400 points.
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This is 100% guarantee that the price exceeds our range and the option will be "out."
The main difficulty is pending. That is, sometimes you can expect a greater effect from the news than it can give at the moment. As a result, the price of the underlying asset can’t achieve your desired value.

Conclusion

As you can see, the financial market considers absolutely all the news but with different reactions. Using the range options news strategy is very important to determine the extent of the price reaction due to the news.

Comments

@FreemanZ's picture

It's effective strategy but sometimes brokers expand the range. In this case it's better to buy "IN" options.

@FreemanZ
Zoran D.'s picture

Yes, some scam brokers expand. However the effectiveness if this strategy is still high. And you know that any strategy can't be ideal.

Zoran D.