Trading Binary Options to News Releases and Events

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Trading Binary Options to News Releases and Events

News events are a major factor in determining market direction in any financial market, and binary options trading is no exception.

To be able to trade the news effectively in binary options, you need to know how to trade and what to trade. You also need to identify which platform you will be using to trade, as trading the news on American-style binary options brokers is very different from doing same on European-style binary options brokers.

Trading the News on American-style Binary Options

If you are going to be trading the news on NADEX or Cantor Exchange, then you need to understand what trading the news is on these platforms. You can trade certain news items directly on these exchanges. The US Jobless Claims data and the Non-Farm Payroll report are the two major news events you can trade on NADEX or Cantor Exchange directly. Unlike most binary options assets, the news releases do not track any underlying markets. You just need to understand what the news is all about, what it traded and how to set the trades accordingly.

About the News Events

There are many events and releases that impact the price of certain related assets. Fortunately the biggest economic news and releases are published in an open forum and it is known in advance when and what will be published. Please visit the economic calendar for binary options to see upcoming news and economic releases.

The Jobless Claims measures the change in the number of people in the U.S. who are applying for unemployment insurance (jobless benefits) for the first time. The data is published every week at. You will be presented with a consensus number, a previous number and when the data is released, an actual number. You need to know the following:

  • The difference between the actual number and consensus number. Is the present figure worse or better than the previous week’s numbers?
  • Is the difference between the actual and consensus numbers greater or less than the difference between the consensus and previous numbers? This is known as the deviation and it will determine the extent to which the USD will react to this news release.
  • Keep in mind the present employment situation in the country as well, as it will determine how the markets react to the figures.

The NFP measures the change in the number of new jobs created in various sectors of the US economy except the agricultural sector. You will also be presented with a consensus number, previous number and when the news is released, the actual number. This news release creates volatility on the USD/JPY. The same questions you must answer as written above for the Jobless Claims report, must be answered by the trader before trading the NFP. It is released on the 1 st Friday of the new month by 8.30am EST.

The following resources can be used to predict what the news release numbers will look like:

Trade Strategy for News Releases

Certain trade strategies must be used when trading the news on American-style binary options. These are as follows:

  • The Out of the Money (OTM) strategy is used to trade situations of surprise. So if the recent releases for the Jobless Claims and NFP show the actual numbers beating consensus estimates, an OTM strategy should be set on the Monday before news release, using the consensus number as strike price.
  • If the trend shows that actual numbers are recently falling below consensus, an in-the-money (ITM) strategy is used, and this trade is setup on the day of the news release.

You may also trade the currency pairs associated with these news items. The USD/JPY is the preferred currency pair to trade the NFP, while the EUR/USD and USD/JPY are used to trade the Jobless Claims report. You can trade these currencies on the basis of BUY if the news releases beat estimates (better than expected), or SELL if the news releases disappoint.

Trading the News on European-style Binary Options

If you are trading the news on European-style options, used by platforms such as 24option, you have to be extremely careful. This is because if the number of orders on one side of the trade far outweighs those on the other side of the trade equation, there is every likelihood that trade on that asset will be frozen and it will be impossible to trade the news.

Therefore, the focus should be two-fold:

  • Avoid trading on an asset directly and rather trade correlated assets
  • Trade after the news has been released to profit from the longer term effect.

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Here is how to deploy these trade strategies:

Correlated Asset Trading in Response to News

To illustrate this, we will cite the example of the Australian Dollar and Copper. Australia is the home of raw materials production and most of this goes to China where 40% of the world’s manufacturing takes place. So there is an integral link between Chinese manufacturing data (such as the PMI), Chinese GDP figures, the value of the Aussie Dollar, and Copper prices. A boost in Chinese manufacturing or Chinese growth will trigger a demand for commodities such as copper which are mined in large quantities in Australia, and will also boost the value of the Aussie Dollar.

So one news item I would follow would be the Chinese manufacturing data, or the Chinese GDP data. But rather than try to trade the pairing of the USD and the Chinese Yuan (wherever it may be found), it would be better to trade copper. Copper and the AUD/USD have a direct relationship to the Chinese data on manufacturing or growth, so they track it wherever it goes. By trading correlated assets, you avoid a scenario where every trader can almost guess the direction of an asset, push the order flows out of balance and force the brokers to freeze trades in that asset.

There are other correlated assets that could be traded. Try to look for the connections. For instance, what is the relationship between the Japanese Yen, the Nikkei 225 average and the Dow?

The snapshot above can give you a clue as to what the relationship is. You only need to read news about the recent surge of the USD against the Yen, and the gains made by the Nikkei 225 in that time frame to understand the relationship.

If you would like to know more about trading the Forex to news releases as fundamental analysis please visit the Economic Calendar for binary options.

Binary Options Trading with News

Binary options traders often rely on data that countries and companies publish regarding different aspects that greatly affect the market. News trading is a fundamental binary options analysis method that has found popularity among traditional and binary options traders because of the ease in obtaining the information. Some news releases may denote price rise or falls. And depending on the news, different assets can also be affected.

Trading the news has been used as a technique to trade equities, currencies and other financial instruments on the financial markets for the longest time. Trading news releases can be a significant tool for financial investors and traders because they hold information that is crucial to market movement. For example, news trading can be traced back to times when news of a certain merchant who is involved in a certain trade can greatly affect its patronage among its customers.

Economic news reports often result in strong moves in the markets, which may create positive trading opportunities for traders, if they know how to decipher the news correctly. Press releases about corporate profits, management change, and rumors of a merger, are all events that can cause a company’s share price to move considerably. Interest rates, employment and export/export rates, and a central bank’s policy change, are also kinds of news that can cause a deep change of an exchange rate.

Basing market trends on world and current events can be helpful. A press release of a country’s employment or retail data can greatly sway certain markets. However, new binary options traders are generally advised not to trade around news. Data releases may be helpful if you are a professional trader. But inexperienced traders should try to avoid trading around news or data releases. At times, news trading can be very volatile, and needs the expertise of an trader to do it successfully.

Types of News Trading

There are two types of news trading according to the method employed in obtaining the information. Any of these two are widely used by traders worldwide.

Manual News Trading

Binary options traders who trade in shares of a listed company know there are certain events that may cause the share price to rise or fall. These factors include sudden changes in energy prices, a labor strike at a supplier, a poor month for the sales, and thousands more of other factors. Manual News Trading is the method of making a profit by trading financial instruments just in time (JIT), and in accordance to the occurrence of those events.

Automatic News Trading

This method is also known as algorithmic trading, or as programmed trading. Automatic news trading has been there since electronic trading and digital tools have come about. However, this trading technique has increased in popularity since the early 2000s. As of 2009, studies suggested HFT firms accounted for 60–73% of all US equity trading volume, with that number falling to approximately 50% in 2020. Algorithmic trading allows investors to their computers to scan live news feeds and watch for items affecting any listed company.

When Not to Perform News Trading

New binary options traders should try to avoid trading before news releases because news speculators may be positioning themselves for the pending news. Sometimes, this causes unpredictable movements and spikes in the market, depending on the news release. Sometimes, if the news release is something really important, related markets may not even move at all. They just stay flat despite the impending change.

Novice binary options traders should also try to avoid trading after news releases because this is usually the situation where new traders get very excited about a sudden market shift and wipe their accounts when the market goes in the different direction. Since new binary options traders are not that experienced to truly understand the effect of the news, they usually just blindly trade, usually in large amounts because of their confidence levels, and lose.

Let’s say that a news release comes out at 10:30 in the morning. Now, we can classify traders as patient and impatient traders. Patient traders are those who wait at least 30 minutes before and after an impending news release before they make a move. Impatient traders are those who trade between 10:15 to 10:45, thinking that this is the time when market movement will react based on the impending news. Impatient traders should consider taking another 15 minutes to make sure that the news has stood ground. Patient traders could also consider taking a full hour with reference to the time of the release.

When Should You Look out for News

The following table shows the approximate times in Eastern Standard Time wherein the most pertinent economic releases for each of the following countries are published. These are also the times at which the binary options trader should be paying extra attention to the markets if he or she plans on trading with news releases.

COUNTRY CURRENCY RELEASE TIME (EST)
United States USD 8:30–10:00 AM
United Kingdom GBP 2:00–4:30 AM
Japan JPY 6:30–11:30 PM
Canada CAD 7:00–8:30 AM
Germany EUR 2:00–6:00 AM
Italy EUR 3:45–5:00 AM
France EUR 2:45–4:00 AM
Switzerland CHF 1:45–5:30 AM
Australia AUD 4:45–9:00 PM
New Zealand NZD 5:30–7:30 PM

What Should You Look out for?

When trading news, the trader first needs to know which releases are actually expected that week. Second, it is important for the trader to know which data is important. Depending on the current state of the economy, the relative importance of these releases may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment.

Generally speaking, these are the most important economic releases for any country:

  • Inflation
  • Retail sales
  • Unemployment
  • Interest rate decisions
  • Industrial production
  • Business sentiment surveys
  • Consumer confidence surveys
  • Manufacturing sector surveys
  • Trade balance

We will always contain the latest news to help you with binary options trading, so just stay tuned. In the meantime, we have compile a list of top binary options brokers to help you get on your way to making profits from successful binary options trades.

Trading the News

Trading based on News Events

With the forex markets pretty much covering most of the Globe, the news or fundamental events that affect the short term and long term price movements are many. Almost every week there are key markets moving events that offer potential trading opportunities. News based trading offers some distinctive advantages compared to traditional technical analysis based trading. The biggest benefits of news trading are the ability for the trader to capture volatile price movements. The downside to the news trading approach however has to deal with spreads.

In most cases, when trading with a broker that offers variable spreads in an ECN or STP environment, the spreads tend to widen quite a bit compared to normal trading conditions. On the same note, when trading with a fixed spread broker, the brokers usually don’t allow trading on news events, for obvious reasons. A trader therefore has to find the right broker that offers variable spreads, allows news trading while ensuring the spreads are not too wide during key news events.

Fundamentals or News Events

Trading the short term market moves

Trading the News . The news events offer a great opportunity to trade the markets in the short term, preferably during intra day. Some of the key news events to trade, in order of importance include:

  • Central bank interest rate decisions (monetary policy)
  • Unemployment Reports
  • GDP, CPI, Retail Sales data (US GDP Release schedule)
  • Manufacturing/Services/Construction PMI data

Besides the above, other markets moving events include speeches from Central banker and black swan events such as geo-political events as well as environmental catastrophes.

The best way to get started with news based trading is first look to the economic calendar. (See ProfitF Economic Calendar) There are many websites that offer free to use economic calendars, that can be filtered based on the currency and its importance.

The chart above shows a filtered economic calendar for the US Dollar. Here we see the all important monthly labor market data, NFP being released at 1530 hours. This presents a good tradable opportunity in pairs such as USDJPY, EURUSD, GBPUSD, USDCAD.

When the headline reading is above the estimates depending on the type of release a better than or worse than expected reading results in price being bullish or bearish.

Taking the above example, when we look to the H1 chart of USDCAD, we can see how the news resulted in a 32 pip drop during the 1 hour. Why was it?

Price in USDCAD fell, because the actual release was lesser than the estimated level including the unemployment rate, which was at 6.2% instead of the expected 6.1%. However, the above event should not be looked into isolation but from a larger perspective. If we zoom back into the chart, we can notice, that previous to the uptrend, price was in a consolidation pattern for a long time. If we look on the H4 charts, we will notice the following.

  • Price was within the uptrend after the consolidation pattern
  • The fact that price failed to drop any further than the closing price indicates a strong supply or support level.
  • As can be seen in later candles, price consistently bounced off this level
  • The support level created during the news event will be an important level to watch at least in the near future.
  • Projecting the trend line, we can observe a possibility of the trend line to break. However, a close and a retest of the support level created during the news event will be a validation that bears are in control.

The chart below shows what we can expect in the near future.

Of course, this time around any potential news from Canada could also play an important role in forming the support/resistance levels.

Trading on Support/Resistance formed during News Events

To illustrate how supply/demand or support/resistance levels are created and can be traded during news events, look at the next example below. Here, the primary focus on the chart is the price movements during the ECB press conference (ECB meeting Schedule). We plot support/resistance lines accordingly on the highs and the lows that were formed.

We therefore know where to buy and sell. A buy order is placed at the low along with a sell order at the high, targeting the opposite direction.

Notice how for the rest of the days, price bounced off these support and resistance levels, clearly providing buy/sell opportunities as expected.

One of the benefits of this trading approach instead of buying/selling directly during the news events is the fact that traders can avoid trading the high spreads that form during news events, while at the same time trading based off the clues given by the market offers a lower risk/high probability entry for the trades.

However, not all news based trading events are as straightforward or simple. The next example shows the USDCAD chart with support/resistance levels drawn over the FOMC statement (FOMC meeting Schedule) and the Canadian retail sales data. In this event because there was no bounce in play, we zoom back into the chart to find a downtrend in play. As we know, we buy on the break of the trend line’s test. ( ? Read more about TrendLine trading )

In this case we already have the key support/resistance levels to trade from. Accordingly, we place buy orders, targeting the next immediate resistance levels.

Although the above approach might have meant having to wait for a great deal of time, the trade opportunity above was a very low risk trade at that.

News Based Trading – Final points to bear in mind

Trading news based events can be profitable if using the right approach. Below we summarize the important points.

  1. Spreads widen during news events so beware of this factor
  2. Stop hunting is a common phenomenon with news events
  3. Some brokers do not allow for news based trading and therefore check with your broker before hand

Support/Resistance levels formed during news events are important levels to bear in mind

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