Traders use a variety of resources to determine how to enter a trade. Those who use charts as their primary source of determining trade criteria are known as technical traders. Other traders use technicals and market fundamentals in combination. At times some traders have said they don’t need anything but a chart in order to know the what, when, and how of a market.
However, sometimes other factors besides charts must be considered. I had a conversation with a certain trader yesterday who never looks at news reports. He was looking at his charts, questioning why the U.S. session was quieter yesterday across many asset classes. This trader was amazed when it was suggested to him that the sluggish markets may have to do with a pending storm in the northeast United States in areas such as New York and Greenwich, Connecticut, where many of the financial transactions are placed. His charts did not take weather patterns into consideration.
As traders, we may lean on certain trading methodologies, but at the same time, we should always be aware of the news and calendar. The example above shows the relevance of news in the markets. Even if you do not trade based on news, having an idea of what is affecting the tone of trading is still vital. As blizzard conditions pound the financial capital of the world, the markets maybe slower today since many traders from New England will be somewhere other than the office.
However, other news can can also have an effect on the market; the economic calendar is important as well. Among other items, it notes that today begins the two-day FOMC meeting; and it was reported yesterday that the meeting would proceed despite the storm conditions. The most relevant part of the FOMC meeting comes on Wednesday when the statement will be released at 2:00 p.m. EST, followed by Fed Chair Yellen’s comments to the press a short time later. The expectation is for interest rates to rise once again; but either way, an FOMC event is usually the catalyst for short-term volatility at the very least.
Without being aware of the news and economic calendar, and trading only by charts, traders may think the market is telling them it’s going to be a slow week. However, we can look to the weather as one potential factor for the slow start, but then we know that tomorrow and possibly through the end of the week there could be an increase in action.
Binary options are a very useful trading tool when trading based on either a quiet week or when expecting volatility. Awareness of the news and general financial climate is important when trading binaries because the price of the options will often be determined by perceived volatility in the market. During quiet times, options will most likely be relatively cheaper; but during times of expected volatility, such as news reports or calendar events, the options may be somewhat more expensive.
The logic behind this is that during volatility, anything can happen; therefore options have more premium built in, while during slow times markets face less uncertainty.
No matter how you trade, remember that trading with only a chart could be considered like trading with one eye closed; and even though you may not base a trade from news, it’s always prudent for a wise trader to at least be aware of the surroundings.