- Douglas Rose
As an investor, you should be aware of both bullish and bearish market directions and you should learn how to make money under both conditions with help of binary options. You can’t always expect the market to remain bullish and stock prices to have an upward trend. One of the important benefits of binary options trading when compared to traditional trading techniques is that you can make profits in both bullish and bearish markets.
You should first understand what are binary options before you can make money from declining stocks using this trading method. As implied by its name, Binary options can result in either of the two possible outcomes in each trade. Binary options require traders to speculate the price movement of underlying asset and if the prediction becomes correct then he wins the trade and gains as high as 80 percent returns on investment. But if his prediction goes wrong, then he will lose the trade and also his initial investment. The underlying assets could be anything such as stocks, Forex currency pairs, Market Indices, commodities like Gold, silver etc.
Since binary options do not actually involve purchasing or selling the assets directly, one can make profits even when the actual market price of the asset is declining. You should understand the market trends and use technical analysis to predict the bullish or bearish market conditions which can help you place successful trades using binary options. You can go for “Long put” option when the market is bearish and choose “Call” option when the market is bullish. You should watch the market news regularly and be aware of various economic events happening around the world in order to understand the bearish and bullish markets. When the unemployment levels and interest rates are low, investor sentiments remain positive and the market is considered to be bullish resulting in an uptrend of stock prices. At the same time, when the unemployment levels are high and interest rates are also increased, then market remains bearish resulting in declining stock prices.
One of the biggest advantages of binary options trading is that you can make profits even when the stock market is having a downtrend and market is bearish. The important trick to make money with binary options is deciding when to go for “Call” or “Put” option depending upon the market trend of the underlying asset. You should learn how to use signals and technical indicators to predict the future market trends of the underlying in advance. Technical indicators like Momentum Indicator, Candle-stick charts, Moving averages, Stochastic oscillators and Bollinger bands can be used to predict the market trends of various stocks and decide when to go for “put” or “call” option. By using technical indicators like charts and graphs, you can understand the current situation of the market and also speculate how it will evolve over time. Once you determine the current trend, you should also evaluate the resistance and support levels of the asset. This will give you an idea of the lowest and highest possible values of the asset and help you figure out how longer the price of the asset might continue to move in the same direction. You should also be aware of when the market trend of the underlying asset might change from bearish to bullish.
The easy way to make money with declining stocks is by going for “put” option which requires placing a bet that the price of particular stock will fall below the strike price before the Expiry time. Another way to gain from declining stocks using binary options is by executing a “touch” option which is a contract to bet that the stock price will drop to certain level before expiry time. You should always decide an effective trading strategy which is suitable for you and follow strict money management principles in order to remain a successful binary options trader. You should understand various trading strategies such as Correction strategy, Co-integration strategy, Trend trading strategy, Hedging strategy and Risk reversal strategy etc. to gain profits even when the market is experiencing a downtrend.
Fundamental analysis is also very important to predict the future prices of the stocks. You should read the economic news and quarterly earnings reports of the companies against which you plan to invest. You should also have idea about the market sentiments to decide how the stock prices are likely to move in future. When you follow proper trading strategies and use technical and fundamental analysis to predict the price trends of the asset, you can easily make profits from declining stocks with help of binary options trading.