Though often considered to be one of the more advanced binary options strategies, the knock-on strategy can produce impressive profits. This strategy is based on the fact that some assets have a direct effect on other assets. The relationship between the two can cause asset prices to rise or fall, based on how the other is performing. Not all asset can be linked, but those that are may present many binary options trading opportunities.
The knock on strategy requires not only establishing a link between two assets, but also learning what the impact on the asset value will be when the asset price of one or the other changes. For example, should the price of coffee beans increase, the price of Starbucks stock would surely be impacted in some manner. Determining an increase or decrease in the asset value becomes a matter of knowing what type of impact to expect. In the previous example, should coffee beans become more expensive, Starbucks may lose profit and decrease in value based on such an event.
Two underlying assets the price trending together
Both technical and fundamental analysis will be required when using the knock-on strategy. World events and market news can greatly impact asset prices. Events need not be major in order to change the trend of an asset price. Technical analysis will include tracking of how the price of one asset changes when the related asset price changes. In some cases, the asset price will move in the same direction. Other times, the price will move in the opposite direction of its paired asset.
Binary options traders using the knock-on strategy for the first time will want to create a list of possible asset pairings. Links can be established within all four major asset classes, as well as many of the underlying assets within them. It is not uncommon to find links in different asset classes, such as the above mentioned coffee bean, which is a commodity and Starbucks, which is a stock option. It should not take long for strong pairings to become quite clear.
When used correctly, the knock-on strategy will offer the potential to profit on both paired assets. This could be in the form of purchasing two separate put options, call options, or one of each. This decision will need to be based on the relation between the two and how one will impact the other. This double profit potential is certainly advantageous, as the research and analysis process will offer two predictions simultaneously. The trader need not purchase a contract on both, but the option to do so will be there.
Binary options traders are advised to monitor asset pairings for a period of time prior to using the knock-on strategy in live trading. The goal will be to determine how different events impact the value of one asset and then its paired asset. Tracking of different outcomes, whether on paper or via computer, is also advised since it is impossible to memorize all outcomes. Even a few notes relating to knock-on asset pairings will make it easier to spot potentially profitable opportunities and act on them when the time is right.
Knock-On-Effect of Currency Markets
This binary options knock-on strategy does require a time commitment, yet is one of the strategies which becomes much easier to use over time. Those who use this strategy on a regular basis will at some point find that they automatically know which contracts to purchase when a specific asset price is likely to rise or fall. With two potentially profitable trades being presented each time this strategy is used, binary options traders will certainly not want to overlook the power of the knock-on strategy.
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