In an earlier Kelly Wallace Wikitrader article titled “The Importance of Analyzing charts in Binary Options Trading, Out-of-the-Money” we discussed the type of charts which are practical to use when doing your research. Today we are going to discuss the effects of volatility on prices and on your analysis of the markets.
What is Market Volatility?
Basically,market volatility is used to refer to the markets or a single asset whose price is extremely erratic. The price may rise sharply at one moment and dramatically drop the next moment. In most cases, it is hard to identify the Trend Line since the price of the asset changes rapidly.Day Traders usually love volatile markets as they can buy when the price drops and wait a few minutes and sell when the price dramatically swings higher. However, you need to be very cautious when trading in volatile markets as these dramatic price swing Out-of-the-Money at the very last second of the Trading Period.
Choosing the right asset
Selecting the right asset during a volatile market is important to a successful trade. Study the Trend Lines of the assets available very carefully to find out if it is affected by large price swings. Choose an asset which is not affected by the large price swings. A good wikitrader software review asset is one that has long and steady
Trend lines and not one that switches up and down every few minutes.As of the time I was writing this article, Binary options brokers offer a limited number of assets for trading.As they develop their market profiles, brokers are adding more assets every month. This is why it may not be possible to find an asset which is not affected by the market volatility. If this happens, the best thing to do is to sit back, do your own research and avoid trading that day.
Ride out the storm
Traders mostly refer to high volatility 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 the professional traders.Most professional investors have told me that when the market starts to swing wildly and the volatility rises dramatically trading is being accomplished by automated trading programs using preset values to make the instantaneous trades needed to and keep pace with the wildly swinging market prices.
Controlling high volatility Fortunately, most market authorities will start slowing down trading by restricting the number of trades allowed in a given time period and by slowing down the data streams of trading results. In rare cases, the market authorities have halted all trading in their respective trading house.In most cases, the market authorities will halt trading on one or more assets which appear to be driving the volatility instead of stopping the whole trading house.Since it has less of an effect on other global trading houses, halting one or more individual assets is the most preferred action. When a whole trading house is halted it tends to start a ripple effect throughout the whole global economy.Watch for the next article in the Binary Options trading series, “Bollinger Bands and Moving Averages Used in Analysis”. We will discuss on how to use Bollinger Bands to analyze market volatility.