The knock-on effect strategy happens to be among the most sensible of all binary options strategies. Some strategies are straightforward and simple to execute, while others are more complex. Even though this strategy is often grouped in with intermediate or advanced categories, it is considered to be among the most plausible to utilize with at least some level of confidence. This is primarily due to the way in which it is employed and the components utilized to create it.
The knock-on strategy can be used in a number of different ways. However, you first need to understand the basics. The first step would be to identify relationships involving two or more assets. These could be from the stock, index, commodity, or currency pair groups.
Each of these should be available to you within your chosen binary options platform. This task can be accomplished by thinking about the connections within the industries the assets operate. The primary locations and base currencies associated with each asset should also be taken into consideration.
Additional considerations could include the raw materials that are needed to produce products. Why? Because when these materials are in short supply the cost of production increases, at which point two companies can be impacted in a comparable manner. Some companies provide alternative goods, while others provide complementary goods and services. With substitute goods, the connection between the companies is very likely to be opposite. For complementary goods, the connection is most likely to be direct.
With a reverse relationship, an increase in the value of the primary asset should contribute to a decrease in the value of the dependent asset and vice versa. Alternately, direct relationships should lead to the price of the two assets moving in the same direction. A simple example would be the commodity sugar. Should sugar be in short supply, you can expect other commodities such as coffee, tea, cocoa, and possibly even wheat to be impacted. Such connections can be extremely profitable for binary options traders.
After you’ve established the key relationships, the decision of whether to select Put or Call should be simple. The key, of course, will be to stay on top of market news and be able to spot the best opportunities. Many traders find it helpful to create a list of connected assets in advance of using the knock-on strategy. This list can make for a quick reference point of all connections, helping you to act quickly when opportunities arise. You binary options broker should provide a list of all available assets within their platform.
Do note that connections can be made within different asset groups. It is possible to connect an index and currency, stock and commodity, and so on. Such connections may not always be as strong as those established within the same asset class, but they can yield profits nonetheless. A huge part of experience success with binary options trading is to know where and when to look for the best trade setups. This fundamental strategy can help you to do just that.
We make it our mission to not recommend anything but the best – which, according to industry experts, is IQ Option, the top regulated broker for your country with a minimum deposit of ONLY $10!
Between 74-89 % of retail investor accounts lose money when trading CFDs