It is never simple to trade the financial markets, so when taking a trading decision, it is important to consider both fundamental and technical factors as well as taking into account micro economic analysis. It is possible for all kinds of factors to influence the markets from natural disasters to economic news releases and election results. These all create an environment where the market is in a constant state of fluctuation and successful traders must look for any possible trading opportunity within the market to make a profit. It is, however, a fact that 95% of people lose money on the markets with only 5% enjoying a profit, so it is important to trade using indicators like oscillators to identify the best opportunities. These indicators show the oversold and overbought levels, allowing the trader the chance of finding the strength in the overbought territory and any weakness in the oversold areas as the market moves more aggressively and more rapidly.
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Being a Contrarian When Trading Binary Options
It can be challenging to be a contrarian when trading binary options, but the key to it lies in money management which can be used from a time perspective and a size perspective. A trader should be looking out for the market to venture into the oversold and overbought territories when they are analysing their oscillators and then, instead of purchasing in the oversold territory, they should use any bounce opportunity to either purchase put options or to sell. This gives an entirely new perspective when identifying trends as a strong trend will bite considerably into oversold and overbought levels.
How to Trade Against the Current Market Trend
When trading contrary to the market, you should take small incremental steps i.e. your entry should be divided into either 3 or 4 separate parts with the striking price having a distance threshold attached to it. It is also important to use a bigger expiry date with every option that is trqaded as this does not only fade a move higher or lower but also postpones the outcome of the options the further the price moves into the oversold or overbought territory. This is the essence of purchasing when everyone else is selling and selling while everyone else is purchasing.
If the options have produced a profit at the expiry date, it is possible to then initiate a regular trade, however this time using the rules that would normally apply to a regular trade.
Using Contrary Opinion Oscillators
A contrary opinion oscillator is one of the best trading tools to help traders take advantage of oversold and overbought territories by measuring market sentiment and identifying the numbers of traders who are bearish and bullish. This tool helps to explain reversals which are otherwise inexplicable, as sometimes, all the factors will point to a trend continuing, however it reverses anyway. A contrary opinion oscillator enables traders to identify these situations and use them to make a profit, and it is an especially useful tool in the case of a long standing downward or upward trend. Oscillator values that are over 80 are considered to be overbought with any value under 20 being considered to be oversold. If the market reaches either of these values, it is likely that a reversal is going to take place imminently. By looking for further indicators of impensing reversals, a trader can invest as soon as they are spotted and make a profit. Contrary opinion oscillators work especially well over longer time frames when trading binary options and can be applied to time frames from 15 minutes upwards.
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- “Buying/selling price preference reversals: Preference for environmental changes in buying versus selling modes.” Irwin, Julie R.
- “Optimal stock selling/buying strategy with reference to the ultimate average.” Dai, Min, and Yifei Zhong. Mathematical Finance 22, no. 1 (2012): 165-184