When it comes to binary options trading, specialization can be a powerful tool, but there are also some huge pitfalls to be aware of. Specialization, simply put, is the act of trading just one or two assets that you know very well. This includes a thorough knowledge of both fundamental and technical analysis within that asset, and how the news is playing out for or against the asset. While this can be a strong tool, do not begin using this until you know the potential risks that it carries.
Application of this Specialization
Specialization only works if you devote the time that you would have spent studying a whole variety of different assets into one single asset. It doesn’t matter what it is. It can be a stock, an index, a commodity, or a specific currency pair. Your goal with specialization is to study the ins and outs of it, how it reacts within the marketplace, and how specific events in the news affect that asset, regardless of whether or not the asset is directly involved in the news.
Start with the fundamental data behind the asset. Learn everything you can about trade balances, volume, and so on. If the asset in question is a stock, look at the company’s financial reports and their sales figures. If it’s an index, learn how the companies contained within the index influence movement. If it’s a commodity, look at how it is being bought and sold, what demand looks like, and where the potential for growth is. For currency pairs, you should have a solid understanding of both nations’ economies, and how their central banks can influence short term demand for a currency. In all cases, be sure that you know what things will help drive prices upward, and what events or factors can cause prices to drop. Also be aware that sentiment and public opinion can drive prices in unexpected or illogical ways. The more time you spend studying the asset, the better you will be at predicting when these things are to occur.
Next, act on the technical indicators. Learn how to read 60 second charts on the asset so that you can maximize your profit potential. Know what signals will work best and which to avoid.
Be sure that you take out a variety of timeframes when it comes to the expiry. You want to be able to handle your asset of choice from any point of view. As a general rule, fundamental data is a long term trade, while technical indicators and the news influence prices over the short term.
Drawbacks Can Happen
One big drawback to the specialization strategy is the fact that it prohibits your diversification. In trading, just like investing, having a wide range of assets and timeframes to choose from is a strength because if one or two fail, then you have others to fall back on. When you specialize in one asset, you don’t have diversity of assets, obviously. You need to make up for this with a variety of expiries if you are trading that asset as a binary option. Finding other ways to profit from the asset can also be helpful. For example, if you want to focus on a stock, creating long term growth from actual ownership of the stock through a traditional stockbroker can be a good idea if you see that it is bullish long term. Dividends may also help. When you specialize, you need to be very careful here and know when selling or going short are the smarter choices. This can prove to be expensive when it comes to fees, which is another drawback.
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