Fundamental Analysis in Trading Binary Options! One way to make use of fundamental analysis would be to go with a trade-the-news strategy. There are plenty of free economic calendars available to view on the internet and when used correctly can form an integral part of any successful trading strategy in binary options trading.
Examples of how Fundamental Analysis Impacts Markets
Recent Examples
Two classical examples are coming from Europe, where both the ECB (European Central Bank), as well as Bank of England, have made major changes when it comes to the way central banks are communicating their rate decisions and rate decisions expectations.
Since Mr. Carney was coming at the helm of Bank of England, the first thing to do was to change the way the bank functioned and by doing that basically he introduced the forward guidance.
It is a well-known fact that the Bank of England is not having any press conference after the MPC (Monetary Policy Committee) is setting the rates unless the rates are being changed. However, after the 2008 financial crisis, rates are at the lower boundary and here we are now so many years later and rates are still low.
In order to communicate to the market what the Committee is looking at, the Bank of England moved the Inflation Report on the same day with the interest rate announcement and this allowed for a press conference to be held. And just like that, the press conference after the interest rate decision was invented, making room for forwarding guidance to take place.
More Examples
Be aware of the political events such as elections, data releases like the PMI and Interest Rates, and Natural events like weather can impact assets in different ways. Fundamental Analysis in Trading Binary Options
A political resignation, death, or election can impact a country’s stocks or commodities. Eg. the death of Venezuelan President Hugo Chavez would impact the crude oil commodity as Venezuela is a mass producer of crude oil. Data releases like jobless claims can build a picture as to the health of an economy. Natural events like freezing weather can bring up the price of natural gas as more and more people use gas to heat their homes and businesses.
The economic calendar provides a timetable of policy decisions like fiscal and monetary policies by central banks, data releases like nonfarm payrolls, and announcements that affect economies all around the globe. Often the markets react to these announcements and publications of data and this is where the keen-eyed Binary trader can cash in. Following the announcements are generally short periods of volatility as the markets evaluate the data. If the market likes what it sees then prices invariably increase, whilst when the market doesn’t like what it sees the prices decrease. Knowing what is important to which country and the effect any data published might have may need a bit of research, but the effort put in will pay off. Fundamental Analysis in Trading Binary Options
A good example of using an economic calendar when trading the Japanese Yen is to look out for publications of supermarket and convenience store results. Japan is very much a consumer-driven economy and it has a culture of people doing their shopping in convenience stores. If sales are down, the economy is not being fuelled by spending and the Yen suffers. Japan, like America, is a big oil-importing nation so a rise in the cost of oil will affect production and make the exports more expensive pushing the Yen down. Similarly, the publication of key indicators like interest rate decisions will have an immediate effect upon a currency’s price as do key statements by leading figures in the global financial world like Fed Chairman Ben Bernanke.
To get the most out of an economic calendar, take the time to see what the previous figures were, the forecast, and its importance to the markets. Use the calendar to form an aid to a trading strategy as by itself; it cannot be relied upon to form a successful trading strategy alone. However, when using the economic calendar in conjunction with some technical analysis/chart reading and a good general reading of global financial news, the economic calendar can be an important tool to every Binary Options trader in a trading arena where just a little bit of knowledge and understanding of the markets can give you a definite edge.
