Binary Options Correlation Trading
- Published: Friday, 16 January 2015 16:28
- Written by Stephan
Besides the trading signals which are won with the help of technical analysis, in correlation trading you can also deduce important indications for the price development from the interactions of base values.
Trading correlations with binary options
The interactions between individual base values are distinguished in positive and negative correlations. When positive, the parallel passing price development will indicate if, for example, the rising DAX affects the Euro in relation to the US Dollar positively, or if the dropping oil price reduces the Canadian Dollar in relation to Euro. If the upward trend of a value affects the developments of another base value negatively, this correlation is denoted negatively. The Japanese currency, the Yen, can be taken as an example, as it loses value with a rising oil price since the country depends very much on the importation of oil.
Monitoring correlations for option trading
If you notice a strong trend with an important base value, you can deduce interesting trading signals for other values, considering the important correlations. The interactions are based on economic and political contexts that you derive, monitor and can analyse for their correlation trading. Strong interactions exist among commodities and currencies, but also among the different currency pairs or commodities and indices. The more detailed you deal with the individual base values and analyse your observations, the more reliable you can generate promising trading signals and apply them to each pursued strategy.
The oil price and its effects
The strategically important commodity; oil, affects several currencies directly such as for example, the YEN but also the Canadian and the US Dollar. If the Japanese economy is extremely dependent on the oil price so that both values correlate negatively, the Canadian Dollar rises together with the oil price. On the other hand, the US Dollar moves subject to the Canadian because 85 percent of the Canadian oil exports are delivered to the USA. However, one should act with caution as the fracking technology has made the USA less dependable on the import. A good match would therefore, be CAD with YEN since the rise of the oil price would strengthen the Canadian Dollar vis-à-vis the YEN.
Gold as a safe haven
For one thing, the price for gold fluctuates with the inflation and the more this fails, the stronger the commodity is sought for asset security. For another thing, a higher gold price also makes an impact on the Australian Dollar since Australia belongs to the largest gold producers. Furthermore, the country also exports oil so that the match of AUD and USD could be very interesting, if both gold and oil rise. On the other hand, large rises in the gold price means that a downward trend is emerging in the share prices - and vice versa. As long as investors expect a namely good yield in the stock market, less gold is bought, so a negative correlation is present.
Making a clever use of correlations
Option trading benefits from reliable purchase signals which are deduced from the important correlations among base values. A further example is copper, whose price increase always refers to an attractive economy and thus, an upward trend in the important share indexes. So use the wide variety of information in order to firstly recognise correlations and secondly, to exploit them for your trading with binary options cleverly.