Trading the financial markets is one of the smartest ways to build your wealth if you don’t want to go through the circuitous route of starting and running a business. However, for many potential traders, the prospect of mastering the markets often appears daunting because of the huge information overflow. Beginner traders find it hard to decide on whether they should trade stocks, forex, commodities or other securities.
More so, many beginner traders often find it hard to decide on the trading strategy that suits them. However, you don’t need to be stuck in a limbo because you are overwhelmed with trading information for beginners. This piece provides insights on a binary options strategy that beginners can use to access the markets. More so, you can also adopt and apply the strategies to other forms of trading activities
1. Trading on fundamental analysis
If you want to adopt the fundamental analysis strategy for trading, you’ll need to take the time to study and learn as much as you can about the underlying assets you want to trade. You can apply the fundamental analysis strategy on stocks, ETFs, forex, commodities, and bonds among other securities. Fundamental analysis helps you to identify underlying factors that could influence the overall performance of an asset or security.
Point to note: Fundamental analysis is concerned with the UNDERLYING FACTORS that could influence the performance of a security.
For instance, you’ll need to know how to read the balance sheet, income statement, and cash flow statement in order to gauge the financial health of a stock. You’ll need to know how an earnings beat or miss affects the performance of stock. You’ll need to make inferences from insider buying/selling of shares, new product announcements and underlying market trends. For forex, you’ll need to be to read the sign of geopolitical trends and macroeconomic movements that’s could weaken or strengthen a currency pair.
2. Trading on technical analysis
The second trading strategy beginners must take time to learn is how to use technical analysis as the framework for making trading decisions. You’ll need to devote more time, dedication, and attention to technical analysis because it takes some more time to master than fundamental analysis. Technical analysis requires you to study the past performance of an asset in order to predict its future performance.
Point to note: Technical analysis is concerned with the ACTUAL performance of securities such as stocks, forex and commodities.
You’ll need to understand how to read charts and draw inferences from those squiggly lines on the screen. You’ll need to be able to know where a security is headed based on its moving averages and volume trades. Technical analysts are interested in trend lines to spot breakout above resistance ceilings and to identify breakdowns below support points. Technical analysis will also need to concern themselves with Bollinger bands, RSI, and Fibonacci sequence among other things.
3. Trading with a basic options strategy
Beginner traders who want to minimize their trading risks should seriously consider using the basic options strategy to navigate the treacherous waters of the market. The basic options strategy requires you to identity the underlying market movement in an asset. If the asset is showing strong bullish trends, you’ll place a call option to support its bullish ascent but you also place a put option to protect against a reversal. If you analysis suggests that that stock is showing bearish tendencies, you’ll place a put option on the security but you’ll protect your trade by placing another call option.
However, you cannot use the basic options strategy in a vacuum. The only way to record success with the basic options strategy is to pair it with fundamental or technical analysis. A mix of fundamental and technical analysis will help you know where the stock is headed and you can then use the basic options strategy to activate your entry into the trade.
The basic options strategy protects your trade against TOTAL losses but the downside is that your wins will also be capped because you’ll need to account for the premium you paid to place the opposite trade.