Earlier in the article “The Importance of Analyzing Charts in Binary Options Trading” we discussed what kind of charts are most practical to use when conducting your research. In this article we are going to discuss the effects of volatility on prices and on your analysis of the markets.
What is market volatility?
Simply put, market volatility is a term used to describe markets or a single asset that is extremely erratic in price; rising sharply one moment and falling dramatically the next. Many times, it is difficult to identify the Trend Line since the price of the Asset changes so quickly.
Day Traders love volatile markets as they will buy when the price goes down, then wait a few minutes and sell when it goes up sharply. However, binary options traders should be very cautious during times of market volatility, as these drastic price swings could get you out of the money in the last second of the trading period.
Selection of the right asset
Selecting the right Asset during a volatile market is essential to a successful trade. Carefully study the trend lines of all available assets and find an asset that is not affected by large price swings. The ideal asset is one where the chart shows that the trend lines are long and steady and do not change up and down every few minutes.
At the time of this article, binary options brokers offer a limited number of assets to trade. Brokers continue to add more Assets each month as they develop their market profiles. As a result, it may not be possible to find an Asset that has not been affected by market volatility. If this were to happen, just sit back, do your research, and don’t trade that day.
Weather
High volatility is often referred to by traders as a market storm. It is easy to see why people would feel this way, as it is best for the armchair investor to leave this type of market movement to professional traders.
Many professional investors have told me that when the market begins to swing wildly and the level of volatility increases dramatically, trading is done using automated trading programs that use preset values to make the instantaneous trades needed to keep up with wildly swinging market prices.
Controlling high volatility
Fortunately, most market authorities will start to slow down trading by restricting the number of trades allowed in a given time period and slowing down the data flows of trading results. In rare cases, the market authorities have stopped all trading at their respective trading houses.
In most cases, market authorities will halt trading in one or more Assets that appear to be driving volatility rather than halt the entire trading house. Holding one or more individual assets is the preferred action, as it has less of an effect on other global trading houses. When an entire trading house is shut down, it tends to start a ripple effect throughout the global economy.
Keep an eye out for the next article in the binary options trading series, “Bollinger Bands and Moving Averages Used in Analysis.” We will discuss how to use Bollinger Bands to analyze market volatility.
