How to Select an Underlying Asset for Your Binary Option

BinaryOptionsNow | Published on November 27, 2011 at 7:41 am

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BinaryOptionsNow – One of the most important first steps in trading digital options is deciding what underlying asset that you want to trade. Each asset performs differently in different market conditions. Choosing your asset is key to whether you are profitable or not. There are three ways to choose assets. You can choose them based on your knowledge, based on the market, or based on the major news events currently happening.

Choosing Assets Based on Knowledge

The most reliable way to choose an underlying asset for binary options is to choose assets that you have experience working with. There is simply no trick, signal, or shortcut that can make up for intimate knowledge of a security and how it reacts to changes in the market. Knowing your target asset like the back of your hand is the best, surest way to make money in any market.

If you don’t yet have any knowledge of the assets that binary options trade in, choose one that interests you and study it is much as you can. Education and experience can make you an experienced, profitable trader in fairly short order. If you a novice trader, you should start by trading one asset to get profitable, and then you can branch out to other assets.

Choosing Assets Based on Market Conditions 

Another way of choosing assets is by choosing them based on the type of market that you want to trade in. Some markets are more volatile and quicker moving than others are.

Currency options, for example, are notoriously volatile. Indices, on the other hand, usually move more in line with a trend and don’t jump around unless there are very large disturbances that affect the market. Less volatile markets are easier for less experienced traders to read and understand. However, some traders like excitement and challenges that volatile markets pose.

If you are going to trade binary option contracts based on market conditions, you should already know what type of trading strategy you use. Then you can choose the market that your trading strategy works best in.

Choosing Assets Based on Major News Events

Every day, there are dozens of major news events and announcements that can greatly impact the markets and send off a wave of trading. One strategy that many successful traders use is to trade around these events to take advantages of any imbalances that crop up. Trading this way makes sure that you’re always in a market where there is action and the possibility for very good trades. It can be a very profitable way to trade binary options.

However, the major limitation to trading this way is that you don’t have in-depth knowledge of the assets that you’re trading because you’re only paying attention to each asset for a few minutes or hours a day. Lacking this knowledge, you’re more likely to miss trades or make bad trades that you otherwise wouldn’t if you had stuck to trading one type of underlying asset.

Choosing an underlying asset for your digital options is very important and can mean the difference between profitable and unsuccessful trades. Start by choosing an asset that you have experience in or are interested in and learn as much about it as you can. Once you have become profitable and you know your trading style, you can branch out to take advantage of favorable markets or news events with other assets.

 

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