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MAKING SENSE OF DROPS

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By: Adam Stone
January 15th 2014 7:52am GMT, London UK
 
Despite the fall in stock prices to start the week, yesterday saw the US markets post a strong rally albeit not one that recouped all the losses from Monday. It is important to note that the fall on Monday is now considered purely corrective in scope and a far cry from anything longer term. Binary options traders the world over voiced their concerns over the fall of equities with unfamiliar actions, they stopped trading them. Unlike when forex pairs’ rise and fall, rendering one or the other of the 2 currencies pitted against each other the victor, equities seem to be exploited strictly on the way up.

The GOptions dealing room reported earlier today that the last 2 days of equities related binary volume was at its lowest levels since the Christmas holiday period, when liquidity is expected to be drastically lower. Daniel Gant of the dealing room explained that “while fluctuations in forex prices tend to yield parity between the bullish and the bearish regardless of the direction of the market, when equity prices start to tumble, it takes all the players out. Thereafter, it takes binary options traders a few days to get back into the option buying spirit.”

In other words, there is a massive opportunity being missed here by binary options traders. Regardless of the reason for the lack of desire to take options while stocks are falling, the result is missed chances at taking strong trades. On the one hand, we aren’t inclined to recommend opening trades that are running counter to the general direction of the market and as is apparent, the move from Monday was simply a correction. Nonetheless, binary options traders looking for strategies to win need to disconnect from the emotional outlook of a falling stock or index price. If the chart for the S&P falling makes you queazy, you are missing out. For starters, even if you don’t like to catch falling swords, as is commonly coined when one tries to buy on the cheap, utilizing reversal strategies does away with that constant fear laden outlook.

For the coming trading day note that things are likely to continue higher. Seeing as how the Asian session, led by a 2.5% rise in the NIKKEI earlier this morning, may mean more momentum for the EU and later the US sessions. Nonetheless, drop scan and will occur again. Just don’t let the viewpoint of devaluation be the cause for you leaving these opportunities by the wayside.

No major news is slated for the day ahead and as such, binary options traders will be solely focused on the price action. Charts for the forex pairs are looking limited as the EUR/USD is still stuck between 1.3705 (resistance) and 1.3555 (support). The range isn’t as wide as may seem. However, the propensity for breaks is low. Momentum too is very weak. So expect range bound trading today which will likely force traders to use pivot points within this range. Such use may result in many false breaks and weaker signals – please take note. Just to reiterate, the signals you get within this range would be considered high risk trades.

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Adam Stone
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Adam Stone

As COO of GOptions, my first and foremost goal is to provide traders with the most up to date info from the markets. I have been trading the markets since 2004 and have been involved with stocks, binary options, and forex trading since then. I have had no formal market education and pride myself on a self taught approach to everything related to trading. I try to focus though on both the technical and fundamental aspects related to each trading day and bring forward the most important aspects of risk/reward in the market.
Adam Stone
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