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What to Trade While Stocks Drop

October 20, 2014 •

While the stock market is going down steadily, a big portion of the economy is being ignored by traders. If you are not comfortable with downward trading, such as short sales and put binary options, going long is your only choice. And luckily, there are assets that are still going up, even if stocks and indices are being driven down into the ground.

If you look at a chart for the euro as compared to the U.S. dollar, you will see that over the past three months, the euro has been steadily going down in price. Over the last several days, it has been a little less steady than normal for the recent few months, but the momentum is still overall downward for the euro, which means that the dollar is going up in value. Other currency pairs are seeing the same thing happen. The dollar is getting stronger all across the board. This is true even against the Japanese yen, the Canadian dollar, and the Swiss franc.

This is actually a common thing within the U.S. economy. When U.S. stocks are down, the U.S. currency goes up. It’s not an exact correlation, but it’s pretty close, which makes judging what to do a lot easier for short term traders. When one goes up, the other usually goes down. Sometimes there is a little lag between the events, but it is a commonly accepted trend and happens far more often than not. And because the dollar is the world’s most heavily traded currency, it has a strong effect on almost every other currency, too.

Since the beginning of September, the euro is down by almost 6 cents in comparison to the dollar. As the dollar goes up, it gives U.S. traders more spending power, which will allow you to buy more euros (or other currencies) with the same amount of money. As those currencies go back up in price, your dollar will lose value. The problem, though, is that Forex brokers tend to charge high fees for holding a position overnight, and therefore, going through a Forex broker is not the best way to invest in a currency long term. Instead, looking at long term binary options on currency pairs gives you the ability to profit off of long changes. As the euro drops more and more in value against the dollar, looking to go long for the long haul in the EUR/USD pair is looking more and more attractive. Of course, there are other things to consider, such as European Central Bank actions and individual country debt, but the setup for a long view of the euro is beginning to take place and should be on your trade radar.

The easy way to capture this momentum is with binary options since there is a low entry price, timeframes can be very short to capture big profits off of tiny changes in price, and the fact that a single broker’s platform will often have a lot of chances for you to make money off of a single event. Forex trading would seem like the most obvious choice in this situation, but Forex trading has the spread to overcome, which can be difficult in a short period of time, especially when you are not trading with a large amount of money. Focusing on small and steady trades is a great way for smaller accounts to grow, and if you are trading as a hobby or you are new to it, this is what you should be attempting to do. It will take a bit longer to create a lot of money, but it is safer and produces better results in the end.

Categories: Starting Out
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