Trading Binary Options To Trump’s Twitter Feed

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Trading Binary Options To Trump’s Twitter Feed

Most institutional traders are now required to watch Trump’s Twitter feed very closely. The reason is that his comments, contained in short and often quite direct tweets, have the power to move the markets as they often do.

Trump opened up a a channel for communication which no president has ever done before him. All his predecessors made official speeches or used the official media channels to express their views. Everything was very much controlled.

Trump seems to prefer to fly solo and use his Twitter account to express his views, be they political, economical, or sometimes even personal. It seems like the president of the USA does not want to use any filter and many people like this direct contact.

How Trump’s tweets can move the markets

Of course not all Trump’s feeds move the price of assets, but there are some that definitely do. Trump is known for his quick response and he tends to follow through on his statements, at least most of the time.

It’s not surprising his tweets move the markets, they reflect the views of one of the most powerful man in the world. So when Trump mentions a company or a new regulation, his opinions suggest a certain type of action which he will take and traders see this as a trading signal.

Here is an example of Trump’s tweet about the Boeing corporation:

And here is the market reaction to Boeing stock soon after this comment on market reopen:

Trump made his comment after Dennis Muilenburg, the Boeing Chief Executive indirectly criticized Trump’s trade policies. Whether deserving or not, this was a great trading opportunity for someone who knew how to trade it. Since Trump signaled the cancellation of a government order, traders knew that Boeing stock would suffer some considerable losses.

There are of course other similar examples of Trump’s tweets which moved the markets enough to even trade the High-Yield Touch options where profits can reach up to 300%.

Not all Trump’s tweets are negative. There are some very positive ones that have the tendency to move stock prices up.

For example, his mention about Ford on the 4th of January moved the company’s stock price up a whooping 4.6%. That is a bog move and it only took one day.

Here is the tweet that did it:

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And here is the result of this tweet clearly visible in Ford Motor’s stock price spike:

Again, as in the previous example, this move was substantial enough to reach the levels of a High-Yield option and gain well over 100% return.

The price of Ford Motor stock has returned to previous levels a day later.

How to trade Trump’s tweets in binary options

The great thing about binary options is that you can trade company stocks, currencies, indicies, funds, and commodities, all from a single online platform. That allows for greater flexibility and more choices of assets that are directly influenced by Trump’s tweets.

Although, as seen in both examples prices tend to jump and playing the High-Yield options could produce a great return, it may be risky to choose this particular option. If you’re unsure that the levels of High-Yield options can be reached than it’s best to stick to regular options where the return is still very high. (I consider a 70% return to be very high.)

If you choose to trade a regular option with 70-85% return, you will have a greater chance of winning.

Timing your trades and setting expiry times

In binary options, the right timing is crucial. As we could see in the above examples the stock prices moved considerably throughout the daily trading session. If you had entered the trades soon after Trump’s tweets (when markets were opened) with an expiry of 3-12 hours you’d most likely win in both cases.

However the best way to trade Trump’s tweets is to monitor the underlying asset on H1 charts to see how it’s performing and then place your trades accordingly.

Brokers can’t adjust platforms to Trump’s tweets

Many brokers set certain limits on the orders and their trading platform during very influential market releases. Sometimes they increase the margin levels or simply add a temporary delay to the order taking so that when you enter a trade it always seems a bit late before it is actually executed.

Many users have noticed this and there are plenty of examples on binary option forums were frustrated users voice their opinions. Brokers argue that the delay is often due to the sudden rise of orders and technological capabilities, or they simply argue that there is no delay or only minimal.

The exact times of influential economic releases and speeches are known to the brokers because their times and importance is clearly defined in specialized economic calendars. See example below:

Events with three bull icons next to them are the most important ones and they usually influence the price action of the underlying assets. See live example here.

The great thing about Trump’s tweets is that they cannot be monitored, as they are quite spontaneous. In addition, traders often don’t have to trade on the asset as soon as the tweet is out. They can wait and trade at anytime after the tweet which makes it impossible for brokers to control.

Few final words in conclusion

As an investor and trader, one always looks for a good signal and trading opportunity that can produce good returns. That’s obvious. Many subscribe to professional signal services to receive trading alerts. To know what moves the market is important for any trader.

Trump with his direct Twitter approach makes things a lot more interesting for an investor who is always on the look out for a good trading signal. Monitoring Trump’s twitter feed can give you a heads up and point you in the right direction.

The great thing is that Twitter is free to use and you can receive the exact same ‘trading signal’ from Trump as the most experienced institutional fund traders, and also at the same time as they. That’s a huge advantage.

Now instead of just reading about Trump’s latest shocking tweets in the news you can actually act and make money on them, before journalist even publish their stories and it is already too late.

Trading Trump’s Tweets

President-elect Donald Trump has become something of a market mover in December. First with his tweet early in the month about canceling Boeing Co (NYSE: BA) Air Force One contract, which caused price in the company drop over $2 during trading. Last Friday, Lockheed Martin Corporation (NYSE: LMT) felt the impact of Trump’s tweeting when the stock dipped over $5 following Trump’s tweet about the cost of the company’s fighter jets.

On Friday’s episode of PreMarket Prep, the hosts discussed the impact of the president-elect’s tweets on the market, along with the way traders could be approaching these sudden moves.

Decrypting

Co-host and proprietary trader Dennis Dick’s first thought on the market reaction was that there may already be algorithms trading off Trump’s twitter feed. “I almost think that there’s people that were already writing Trump tweet algorithms. The reason I say that is because it happens so fast, they’re hitting that thing within split seconds.”

Dick elaborated that it would be quite a feat for a program to parse out the meaning behind what Trump is tweeting. “It’s impressive if you are able to make something like that to actually read the text. He’s not throwing out a ticker, he’s not saying anything blatant. It always takes some interpretation.”

Counter-Trading Trump

However, the Trump tweets may not be quite the trend setters they seem at first blush. Despite the initial hit following the president-elect’s Air Force One missive, Boeing bounced back close to its previous price that same day and has traded up since then.

Dick posited that the same may be true of Lockheed Martin. In that case, one strategy could be to trade against Trump. “The contrarian trade would be to buy LM and short Boeing,” he elaborated.

Overall, Dick didn’t recommend betting the house on Trump’s twitter feed, saying the price dips could just be, “short little moves that don’t have anything to do with company fundamentals.”

Listen to the full discussion in the clip below.

PreMarket Prep is a daily trading ideas show that focuses on technical analysis and actionable short term trades. You can listen to the show live every morning from 8–9 ET here, or catch the podcast here.

A Guide to Trading Binary Options in the U.S.

Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?

Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.

Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.

Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.

U.S. Binary Options Explained

Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.

Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?

If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.

The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.

Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.

A Zero-Sum Game

Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

  • NASDAQ US Tech 100 index > $3,784 (11 a.m.).

The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)

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