How to Knock Down the Market with Binary Knock-on Effect Strategy

How to Knock Down the Market with Binary Knock-on Effect Strategy

Submitted by adil on Wed, 02/04/2015 - 13:59

In order to trade successfully in the binary options market, different strategies are adopted by the traders so as to efficiently execute the trading plan and closely monitor it every step of the way. One such strategy is called knock-on effect strategy, which is also known as the Market Pull Strategy. As the name suggests, this strategy is developed on the basis of a principle that the movement of any particular option will have a knock on effect on the other option. This strategy is considered as one of the most logical strategy to be used in binary options trading, provided, there is a certain level of certainty.

Understanding Asset Correlation

So, if you want to use this strategy successfully, it is important to know different relationships that underlying assets have, for example, it is crucial to understand the correlation that occurs when the price action of an asset affects the price action of another asset. If a trader manages to monitor these interrelations, he can choose to trade call or put option in binary options trading on the basis of variations that occur in the asset price movement, which creates variation in the movement of another asset price.

Therefore, a trader must have a basic knowledge of relationships among different assets in order to efficiently implement the knock-on effect strategy. But it is not so simple, because there are a lot of interrelationships that needs to be considered, and some of these are difficult to understand. However, you can make the forecasting of price movement simple, even with a basic or little understanding of correlations between various assets. It also increases the probability of placing successful trades.

Following the News

Market pull or knock-on effect strategy can also be effectively implemented by following the news. For example, due to the tension between Iran and the West in the past, the prices of oil increased as Iran is the fourth largest oil producer and controls 33% of the oil supply around the world. The market news help traders take successful investment decisions and prepare a forecast to place profitable trades. Another example is the heavy flooding in Thailand that effected the export of Japanese consumer products as these products are exported through Thailand. As a result of the interrupted export routes, the value of Japanese Yen also declined.

Challenges to Successfully Implement Knock-on Effect Strategy

It is very important for a binary options trader to know that the knock-on effect or the market pull strategy may seem like a quick way to earn money, but it is necessary for traders to realize that it requires at least a basic understanding to determine the asset they wish to trade, and how those assets will get affected by the market events. For that to happen, they must analyze the movement of assets before entering the trade, and explore the economic situation of these assets to figure out why the correlation between two selected assets will continue to exist for the trades they will subsequently enter into.

Another issue faced by binary options traders is the short period of binary options contracts, which keeps them from getting enough information about the asset price movement at all times. To address all these issues successfully, a trader must use a combination of good strategy and its effective implementation. But unfortunately, most traders fail to do so as they lack resources and do not have enough time to do that.

Conclusion

If you are a new entrant in the binary options market, or if you have not used market pull strategy previously, you must consider a combination of fundamental and technical analysis when you take the decision to enter or exit a trade position using this strategy, because the market news and events significantly affect the asset price and a combination of these analysis will assist you in knowing how a variation in the price of one asset will impact the price of another asset’s price.

The market pull strategy can also be used in combination with different hedging strategies to further increase the potential of earning long term trading profits.