One category of assets that can be traded in the binary options market is the stock indices. The stock index is the asset derivative of the stock exchange on which stocks are traded. In today’s article, we will focus on the major American index; the Dow Jones.
Of the three American indices, the Dow Jones stock index is the one that mirrors the American economic and trading sentiment. The NASDAQ is a composite of stocks of top 100 companies in the technology and pharmaceutical sectors, and includes stocks of foreign companies. As a result of this composite mix, its price action is not truly reflective of the state of the American economy, which is the fundamental ingredient we want to trade.
Trading the Dow Jones Index
Before starting to trade the DJ30 index as a binary options asset, it is pertinent for traders to know that this asset is not open for trading 24 hours of the day. It is only open for trading as from 1330GMT to 2030GMT, Monday to Friday. As such, trade decisions on the DJ30 asset must factor in this time frame.
The next step is for the trader to identify what factors lead to investors selling off their stock holdings, leading to a drop in the price of the DJ30 index asset. The performance of this index is tied to the following:
1) Manufacturing data
2) Employment data, especially the US Non-Farm Payrolls report.
3) Gross Domestic Product (GDP).
4) Consumer sentiment data.
5) Housing data.
6) Crude oil prices.
7) Earnings reports, especially that of the financial services companies.
8) Credit rating upgrades or downgrades.
9) War or terrorist attacks (e.g. 9/11).
10) State of the global economy.
Employment data are a very strong market mover. Whenever the Non-Farm Payrolls report and US employment rate data disappoint to the downside, the DJ30 is usually sold off hard. We saw this clearly displayed by traders after the last release on June 1, 2012. Manufacturing data are a measure of employment and will ultimately affect consumer spending. This is because increased manufacturing is a sign that the economy is picking up, will lead to more jobs, and more money in the pockets of its citizens. Consumer sentiment is a measure of how consumers view the state of the economy. Consumers spend more when the economy is good and they have jobs and more disposable income.
These are all factors that affect the decisions of investors as to whether to hold on to their stocks or to sell them off, and this is what affects the DJ30 index.
Trading the DJ30
The Option Builder binary options trade is a good way to trade the DJ30. The American exchanges are the last major exchanges to open after the Asian and European exchanges. As a result, investors would have been able to feel the pulse of the market. Traders can also monitor the news channels such as Bloomberg TV, as the analysis of the trade for the day will indicate where the index futures are likely headed. On Option Builder, the trader is trading the Up/Down binary option, and can set the expiry to a specific time. Usually the expiries can be set to a clock, with hourly intervals from 0000hrs to 2300hrs, and every 15 minutes from 00 – 15 – 30 – 45 – 60 minutes. You can therefore open the trade a few hours to the open of the DJ30 index asset, and set the expiry to 10 to 15 minutes after the market open.
Usually the index rises or falls immediately upon market open according to market bias. So set your trade with the Option Builder accordingly after getting the market sentiment for the day.