Experienced traders know that a downturn in a market is almost always an opportunity. How that specific opportunity should be treated is up for debate, but when an asset–regardless of what type it is–is falling fast in price, there is always a chance to make money off of it.
There are two major schools of thought when using this approach: the bull and the bear. The most popular of these–the bull approach–says that you wait for the asset to hit bottom, and then go long. Strong assets gain value. This is a central tenet of the stock market. So, when there’s a dip (or crash) in prices, if it’s a strong asset, it will eventually go back up above where the fall started from. Look at what’s going on in the Dow Jones Industrial Average right now. The Dow has lost over 1,500 points in the last month. That’s well over 8.5 percent of its value. But, the Dow has shown steady signs of growth over the long term. Historically speaking, major indices like the Dow gain about 3 percent per year. So, this big loss should present a big opportunity for future growth as this drop will be more than made up for.
The problem with this particular bull approach is that it’s long term. If you put your money into stocks and funds that reflect the Dow, you may need to wait for months or even years before you have made any sort of worthwhile profit. For short term traders, this is unacceptable. It doesn’t mean that being a bull is bad or doesn’t work. It just means that this particular strategy, while attractive to some, is not effective enough for others.
Trading on action is far more effective over the short term. This involves watching and waiting for identifiable trends and then pouncing on them to create short term growth. Both bull and bear strategies are used here as you are no longer limited to a certain direction. Many people prefer to use binary options when they utilize this strategy in order to keep trading costs down. This is particularly attractive to traders that are spending less than $100,000 per trade. Either way, the goal is to watch an asset and wait for the right moment to execute your trade. If you can see that a relative bottom has been hit on a major stock and that selloffs will halt for the moment, then a buy is executed. If you’re trading with binary options, you place a call order. Make sure that you have a timeframe in mind before you do this. Yes, the overall goal is for the price to go up, but you don’t want to be sitting on a trade for too long. When you do this, you are leaving your money in limbo and not realizing the profits you have available. This is why 60 second trades have become so popular in the world of binaries; they allow you to see whether you have profited or lost very quickly. 60 seconds is sometimes too fast depending on what you’re doing, but the principle is the same. You want to identify how long your target trade will take to manifest itself so you can keep your money in for as short as possible and still see a profit.
When looking at assets, this again comes down to specifics. If you are trading a huge stock with a ton of volume, changes can happen very quickly. Small cap stocks will see changes more slowly, usually, simply because fewer people are trading them and price pushing is slower. Take these into account when executing trades and determining timeframes. Also, take into account how much change you need in order to see a profit. This needs to take into account commissions and fees, as well as a number that offsets your risk. That’s another strength of binaries; you do not need a substantial change to profit, just a fraction of a penny.
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