How to Trade on Stocks?
Like said above, there are essentially two ways to trade on stocks in binary options. The first is to trade on a stock during a specific event that will influence the value of a stock in a predictable way. The second is speculating on the influence other traders will have on the movement of the value of a stock.
Below you’ll find all these strategies.
New product releases
One particular way to trade binary options on stocks is to trade during periods when a particular company is expected to release a new product. A product launch usually always influences the value of a company significantly.
Before a new product is launched and the launch date is approaching, the value of that company is expected to increase continually. During these periods you should buy binary options contracts that predict that the value of that asset will increase.
After the product launch is completed, two things can happen. If the new product is not that great, then the value of that company will decrease. If the product is really awesome, then the value of that company is expected to increase. Based on these, you can make appropriate predictions.
Another types of events are profitability reports. Usually the release date of these reports is always revealed in advance. If the company is believed to have been performing well during a certain period, then before the profitability report is released the value of that company will slowly increase continually.
If after the report it becomes evident that the company did indeed perform well, then the value of the company will increase. If, however, the company managed to generate fewer revenues in the recent past, then the value of that company will definitely decrease.
When dealing with profitability reports you should trade binary options after the report has been published.
Mergers and acquisitions
When a company announces a merger or an acquisition of another company, then the value of that company is expected to increase considerably in the future. Most of the time mergers are not always announced in advance; so trading is only possible after the announcement of such news.
This is perfectly fine, because after the announcement of such an event the value of the purchasing company will steadily increase. In these situations it’s very safe to bet on the fact that the value of that company will increase.
However, you may also watch out for takeover or merger rumors in the business world. If a rumor is spearing (doesn’t matter if true or false) that company X will buy company Y, then the value of company X will definitely increase.
Government related events
Actions taken by governments will also influence the value of companies. For example, if the US government would implement a law that would tax all tech companies with 20% next month then you will know with high certitude that the value of companies such as Apple and Microsoft will decrease dramatically soon.
If a law is implemented or is planned to be implemented that will, say, abolish all regulations and tariffs on oil imports, then you will know for sure that the value of companies like BP and Exxon will increase dramatically in the near future.
Speculative Trading on Stocks
The above cases all referred to trading on special events and news related to specific companies. However, these kind of events happen only very rarely. Most of the time you will not be able to rely on news to trade binary options on stocks.
For this reason, experts have devised various ways that will allow traders to predict the movement of certain stocks using technical analysis. Technical analysis will analyze trading sentiment and its possible outcomes and consequences.
Trading sentiment is the perception of all traders trading on an asset on the future movement of that asset. The collective actions performed by traders will greatly influence the short-term movement of assets.
So, for example, if you would know that a huge number of traders suddenly decided to buy a certain stock during a given moment, then you would know with high certitude that the value of that stock will increase in the near future.
Well, doing exactly what was described in the above example is perfectly possible using so-called candlestick indicators in binary options trading.
Candlesticks are financial trading indicators that denote the influence of trader action on the movement of assets such as stocks. Candlesticks are made up of two shadows and a real body.
The real body, which is either green or red, denotes how much traders have influenced the asset to move. A short green real body means that the value of the stock has only increased with a small number. A long red real body means that the value of the asset has dropped significantly.
The shadows are the two lines above or below the real body. These denote the amount of traders needed to determine the change displayed by the real body. A long upper real body means that a large number of traders have bought the asset. A short lower shady means that only a smaller number of traders have sold the asset.
How to use candlesticks to trade on stocks?
There are multiple strategies on how to use candlesticks to trade binary options. We have given a detailed description on all of these. You can find them linked from the menu on the top of this page, below the intro. You should definitely read all of these strategies.
In short, using these tricks you will be able to tell in which direction a stock will move in the short term. For example, if you see a very long green real body with a very long upper shadow and very short lower shadow then it means the following:
– A very large number of traders have bought the stock
– A very small number of traders have sold the stock
– The value of the stock increased significantly
In this case, you will be able to know with high certitude that the value of that stock will continue to increase in the short term and as such, you will be able to purchase a binary options contract with the right prediction and may win most of the time.
So, in short, this is how you speculate on stocks in binary options trading. However, please read all the other articles we have written about candlestick binary options trading. Knowing all those strategies will increase your winning ratio considerably every time you trade.
Also, feel free to check out all the other articles and guides on our website in order to learn everything about binary options trading on stocks and other assets.