Watching sector action can help us to have a great idea of what to do. We reference sector moves, both up and down, and where they land at the end of the day often here, but we do this for a very good reason. When a sector shows unusual action, it helps us to have a much better idea of what to trade, and how to trade it.
The energy sector was hit hard on Friday, dropping by 1.37 percent. All of the major sectors fell on Friday, but this one was hit the hardest. Financials fell by 0.74 percent, healthcare fell by 0.47 percent, and technology fell by 0.82 percent. All of the major indices dropped, too. Energy was hit much more severely than anything else, and it was a very noticeable difference. Oil’s price obviously had a lot to do with this, but it created an opportunity that would have been far more lucrative for binary options traders than other traders.
What was that opportunity? It was a clear direction of where to place your short term money. Put options were the correct choice of the day, but because the drops were far more severe in the energy sector, then this area of focus had a much better predicted outcome than any other area. Trading companies like Exxon or Chevron, or focusing on dropping crude oil, would have been much easier to predict when there is a time limit on how long the trade could be open, which is exactly what we find in this particular marketplace. While there were other opportunities in other areas and other sectors, this particular focus would have given you a more predictable profit rate.
Long term wisdom says that if you are trading in the stock market in any capacity, you should find assets, be they stocks, indices, ETFs, or representative funds of some sort, that show a lot of potential for growth. When you do, you want an asset that will go up significantly so that your time and any sort of commissions or fees will be all worth it. Let’s say you want to buy $100 worth of a generic ETF, and it will cost you $4 to do so. You would think that all you need to do to make this trade worthwhile then, is to wait until it goes up to $104.01. You can sell it, and you have a profit. But what if it takes a year to get there? What if it takes a month? Are any of those trades worth it to you? You have invested your cash, cash that could be spent and invested in other spots, and you received a less than 0.01 percent return on your capital. Even if you annualize a month’s timeframe, you’re still only making about 0.1 percent on this. Again, not worth it.
The truth is, if we invest like this, which is what most people do, situations like this happen all the time. Most people don’t pay any mind to this because that’s just “how it is.” But it doesn’t need to. When you give yourself the ability to profit off of falling prices, then bear markets are just another opportunity for growth for your personal cash. The catch here is that you need to recognize the market conditions that you are up against and have a cost effective way to capitalize on them. Binary options help you to accomplish this, but the first step in the progression is that you need to have the tools to recognize what the trend is, and this is why we keep returning to concepts like sector movement and stressing their importance.