Several binary options traders have differing views about relying on economic events and news as trade signals. While some traders completely steer off it and stick to technical strategies, others consider economic news and events as their fundamentals’ holy grail.
Economic news and events describe any announcement or information relating to the Economy of a country (or regions, continents, and the world) or financial markets. This news or events cover aspects such as Government policy announcements, economic data reports, central bank releases, and even reports of earnings of several important firms. Some of the most popular examples of economic news are interest rate decisions announcements, Gross Domestic Product (GDP) reports of a country, and companies’ earnings reports.
Economic news and events are keenly observed by traders and analysts, who use them with other fundamental and technical analyses to develop trading strategies and make investment decisions. Moreover, this news and events can significantly impact the financial markets and asset prices since several traders may adjust their trades based on the new publicly available information.
<h2>Time Frames for Trading Binary Options</h2>
There are several time frames for trading binary options. For example, some options are traded for as short as 30 seconds, while others can be traded for months.
Based on this, there are three time frames in binary options trading.
- Short-term options: These options have expiry times ranging from 30 seconds to a few minutes and are consequently very sensitive to economic events and news updates. Many traders focus on technical analysis for these trades and use technical indicators like volatility or momentum to determine trade entry and exit points. However, traders may use these options to take advantage of quick price movements immediately after economic news releases, such as Central Bank announcements.
- Medium-term options: These options have expiry times ranging from several hours to a few days. They are usually affected by both Economic events and technical analysis. Traders employ economic news to understand the impact of economic events on an asset’s price and how to navigate such situations while using technical analysis to determine appropriate market entry and exit points.
- Long-term options: These trading options have expiry times ranging from several weeks to months. They are highly unlikely to be affected by short-term economic events. Therefore, traders employ fundamental analysis to understand wider trends that affect an asset’s price over a longer time frame. Technical analysis is the main strategy to determine market entry and exit points.
<h2>How Economic News and Events Affect The Time Frames</h2>
Economic events and news can impact movements in asset prices and financial markets. This impact will largely depend on the following:
- The significance or magnitude of the event or news— is it important to move the price and indicate its direction (for the duration of your preferred option)?
- The prevailing market sentiment amongst traders— do most traders believe this news is not important enough to affect the market?
- Duration— Will this news have a long-lasting effect or cause short-term volatility before it simmers down?
As the time frame changes or gets prolonged, these factors may change, making the impact of the news on different time frames vary.
- Short-term options: Short-term options are usually affected by immediate price movements. Traders often look for price movements that occur immediately after releasing such news. For example, the release of the weekly report on crude oil inventories can significantly impact the price of oil and other oil-related assets. Traders will often use short-term options with expiry times of 30 seconds to a few minutes to take advantage of the immediate price change as soon as the report is broadcasted.
- Medium-term options: With this category of options, traders focus more on broader market trends and technical analysis. For example, suppose there is major political news (like a war or change in policy). In that case, traders will anticipate a longer-term impact on the market and use medium-term options with expiry dates of a few days to take advantage of the market trend that will happen after the news gets out.
- Long-term options: This takes a macroeconomic approach considering several factors like inflation, growth rate, interest rates, and the impact of demographic and social trends on an asset’s price. For example, the government’s announcement of the provision of a major infrastructure will have a long-term impact on the infrastructure-related asset market. Traders will employ options with months’ expiry dates to take advantage of such an opportunity.
<h2>Conclusion</h2>
Economic news and events impact the market differently depending on the time frame in binary options. Short-term options will be more likely to be affected by immediate price movement, while medium and long-term options are more likely to be affected by broader trends in the market.
Traders are advised to use a combination of technical and fundamental analysis to identify potential market entry and exit points.
