Trading binary options with Eur USD

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Trading EUR/USD

Why Trade this System?
One of the main reasons we chose the EURUSD as the underlying asset of choice to trade this system is because it is the currency pair that is traded the most in the forex market. This ensures that as a binary options instrument, it is available for trading all day long and will have good liquidity, enabling you to get good pricing. You will not have to buy costly bets that will have a greater risk than reward.

If you are starting out in binary options trading, this is a great way to start your trading career. This system can be used to trade the Rise/Fall variety of binary options. If your broker does not offer this trade type, you can opt for the High/Low variety or the Touch/No Touch binary option.

Setting Up the System:

Most binary options brokers do not provide charts for use in trading analysis, so you have to get the charts yourself. Since the underlying instrument is a forex instrument, you can easily get a chart by downloading an MT4 platform from any of the popular forex brokers like forex.com.

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The strategy in question is to be implemented on a 30-minute chart, and the strategy will make use of the following indicators:

1) MACD (12, 26, 9): This is a momentum indicator that shows the strength of the signal.

2) Parabolic SAR (default settings of 0.02, 0.2): This is a trend signal.

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Here are the trade rules for this strategy.

BULLISH SENTIMENT: In order for the EURUSD to go bullish, we wait for the Parabolic SAR indicator to indicate a buy signal, which occurs when the stars of the Parabolic SAR indicator appear below the price action on the chart. We also wait for the MACD lines to cross from negative to positive.

BEARISH SENTIMENT: In order for the EURUSD to go bearish, we wait for the Parabolic SAR indicator to indicate a sell signal, which occurs when the stars of the Parabolic SAR indicator appear above the price action on the chart. We also wait for the MACD lines to cross from positive to negative.

Once you have got a confirmation of the signals, the next step is to choose the binary option trade of your choice. For this example, I will recommend choosing the Touch/No Touch option. This is easier to predict than a Rise/Fall or a range option, as all you need is a touch, (or no touch) to make money on this trade.

If you are bullish on the EURUSD, you can decide to purchase a Touch option contract, selecting a strike price to the upside. Make sure you identify the resistance points and keep your strike price below the resistance so you can be sure the price action will actually touch the price barrier you have set. You can then purchase a “No Touch” option contract, selecting a price barrier to the downside. In this instance, you can set your price barrier well below the nearest resistance so the price action has no chance whatsoever of touching your price barrier.

Repeat the same trade sequence in reverse fashion if your signal indicates a bearish outcome. Whichever trade you decide to take, you should at least have 4 different trade options to benefit from:

  • Touch – Price barrier between market price and nearest resistance.
  • No Touch – Price barrier below the nearest support.
  • Touch – Price barrier between market price and nearest support.
  • No Touch – Price barrier above nearest resistance.

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The currency pair is classified as major a+since it is the most traded currency pair in the world and they are very close in value. The difference in value, i.e. the strength of the currencies depend on the economic status of the states they represent, coming down to the Eurozone and the US economy.

The EURUSD is the most traded and most liquid pair since this currency pair is being sold and bought numerous times on a daily basis. It goes over the trading table as the best know currency pair. The special feature which draws so many traders to the EURUSD is the small spread. Namely, these currencies are close in value and they do not account for major losses when it comes to individual trades. Since binary options are close to Forex trading, this pair is one of the highlights in the options market as well.

Before you enter a binary options trade on this currency pair you might want to know the following:

  • The greatest market activity of this pair takes place during North American and European sessions and you should trade only during USA and European sessions to avoid a standstill of the currencies;
  • The Asian market activity time is also not to be neglected for trading ranges with a special target on One Touch options given the consolidation of EURUSD in Asia;
  • EURUSD trading is highly popular since it involves the two biggest global economies the USA and Eurozone which reflect on minor economies as well.

Follow The News of the European Market

To stay in the loop, it is very important to follow the economic news related to this currency pair since it contains a lot of useful information regarding price movements of the two currencies. As a committed trader, you should take a look at the European Consumer Price Index (CPI) since it reveals the inflation status which is one of the key factors for the European Central Bank when drafting its monetary policy.

The European Purchasing Manager Index (PMI) represents also an important source of economic information given that it examines individual sectors and if they are growing or declining which is yet another hint as the European Central Bank uses the data and classifies them as dovish or hawkish/bullish or bearish.

Traders also look at the EU GDP (Gross Domestic Product) and the course of the unemployment rate in the EU when they trade the EURUSD currency pair. Follow the press conferences of the sessions of the ECB (European Central Bank) whereby the ECB President answers interesting questions on the market, an event which causes fluctuations in the market since the EURUSD trade frequency is particularly volatile during these events.

All of the economic news and releases give useful information to traders and can help them acquire more knowledge related to the economic movement, but they do not represent an instant success ticket, but rather give hints to traders of what is going happen at the next meeting and what decisions will be taken. A trader’s job is to interpret the information and link them to the EURUSD price movements, e.g. if inflation is greater than predicted by the ECB, you can prepare yourself for rates being cut.

Follow The News on the US Market

Since the USA is the biggest economy, closely followed by the Eurozone, economic news is being released regularly on a monthly basis and the news which one should take to heart as a trader are discussed below.

The Federal Reserve or the US Central Bank has a dual role and its decisions can be guessed from employment data and inflation or CPI. As a trader, make sure to take into account releases relating to these two factors, but some other sources will also be to your benefit. For example, the Institute for Supply Management (ISM), Retail Sales, Manufacturing and Non-Manufacturing, GDP, Private payrolls (ADP)Producer Price Index (PPI), etc.

Studying the different information from all of the listed sources can help you gain a better understanding of the market.

The Goal of Following Economic News

Well, of you follow the big economic releases, you will notice that the markets show the most intense volatility during those periods. Technical factors are the trigger for market movements but the reason for movement is news release which has been already proven in the past.

In order to give you a full picture let’s imagine that news on the unemployment rate in the Eurozone is being announced during the London market session and the rate is higher than initially predicted. Such an information will automatically lower the value of the EURUSD pair since everyone will be looking to get rid of the depreciating Euro since they know that the ECB will be looking to modify the monetary policy in order to make up for the bigger unemployment rate. But, if during US news release it turns out that the US GDP is not indicating growth but rather a recession, it will completely out-balance or undo the Eurozone unemployment crisis and the EURUSD will automatically start to climb in value in the market.

Trading EUR/USD

You will learn about the following concepts

  • Introduction to EUR/USD pair
  • Most traded currency pair
  • Exchange rate factors/li>
  • Example

EUR/USD is the most traded currency pair both in the Forex market, as well as in binary options trading. Due to its popularity, the EUR/USD pair is included in “The Major” group, which represents the most traded currency pairs all over the world. As of April 2020, trading in the EUR/USD pair accounted for 24.1% of the Forex markets total turnover, implying great liquidity, while the USD/JPY cross had an 18.3% share and GBP/USD stood at 8.8%.

Liquidity is important because it causes prices to change gradually and trends to develop incrementally, as opposed to quickly occurring price changes at times of low liquidity and high volatility. Hedge fund speculators tend to act aggressive during periods of low liquidity, forcing other participants to do the same, thus rapidly moving the price. While this might be in favor of some trading strategies, for others it is not.

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The value of the EUR/USD is quoted as 1 EUR per X US dollars. For example, if the exchange rate is estimated at 1.3000, this means that 1 euro is traded for 1.3 US dollars. Thus, you will need to sell 1.3 US dollars to purchase 1 euro. The first currency in the cross is dubbed “base currency” (in our case EUR), while the second pair is the so-called “quote currency” (in our case the US dollar).

When it comes to currencies, the movement in prices of currency pairs is measured in ”pips”. A pip is an acronym for the phrase “percentage in point”. This is the smallest price change, which a given exchange rate can make. Most major currency pairs are priced to four decimal places, so in this case, the smallest change is that of the last decimal point – for most pairs this is the equivalent of 1/100 of 1%, or one basis point. In reference to the example above, if EUR/USD rises to 1.3005, then the cross has gained 5 pips, while an exchange rate of 1.3050 means that the euro strengthened against the US dollar by 50 pips, and so on.

Changes in the EUR/USD cross have a broad effect on the financial markets. All commodities, which are priced in the US dollar, generally receive support when the greenback is pressured, and vice versa. Moreover, currencies which are pegged to the dollar or the euro are also affected by fluctuations in the EUR/USD cross.

Also, due to the sheer size of the economies represented by the two currencies and their role in the international trade markets, a strengthening of each, which comes on the back of the other, tends to have a significant impact on related economies as well.

In order to accurately predict fluctuations in the EUR/USD currency cross using fundamental analysis, you need to be keep a close watch on all the news coming from the Eurozone and the United States. The single currency bloc commonly releases key economic indicators during the European trading session (generally between 06:00 GMT and 12:00 GMT), while data from the worlds biggest economy are typically streamed between 11:00 GMT and 14:00 GMT, apart from the FOMC policy meeting conclusion and the release of Fed minutes which are due at 18:00 GMT, and a few other releases. Unexpectedly upbeat or downbeat key readings from the worlds No1 economy, such as nonfarm payrolls, consumer sentiment etc., tend to ripple through the global financial markets.

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