Hey everyone! Thanks for showing so much support for the Binary Options Corner so far! I'm glad to see that so many people are getting something valuable out of this column. Lately, we've talked quite a bit about different strategies and risk management ideas for beginners. However, today I decided we'd dig into the advanced side of binary options. So, we're going to talk about one of my favorite topics; correlating data! So, let's get right to it...
What Is Correlating Data?
Correlating data is data that shows a relationship between two different assets. When it comes to using data correlation as a way to make more money trading binary options, there are three different types of correlation that most traders, including me, look for. They include...
- Asset Correlation - Asset correlation data is data that shows that movement in one asset is closely tied to the movement in another asset at all times. This type of correlation is most often seen when we look into changes in the value of currencies and commodities. For example, if a currency is backed by a commodity (like gold), as the value of the commodity moves, chances are the value of the currency will move in the same direction. When we see this type of movement, we can describe this as asset correlation.
- Product Correlation - Product correlation data is data that shows a product ties two separate assets together. This is often times short term data, and is seen most often in technology providers. A good example of product correlation would be a new cell phone hitting the market. If the manufacturer makes an announcement that the cell phone exclusively available through a single provider, you can expect to see similar movement in both the manufacturer's and the provider's value over a short term period.
- News/Press Release Correlation - News and press release correlation data is a piece of data in the news that ties two companies together. A good example of this type of correlation is class action lawsuits. When these suits are filed, they tend to be big news. If more than one asset is listed as a defendant in a class action suit, you can expect to see downward movement in the values of both.
Real Life Examples Of Data Correlation
Swiss Franc / Gold Correlation - The currency for Switzerland, the Swiss Franc, is 25% backed by gold. Therefore, as the value of gold rises and falls, so does the value of the Swiss Franc!
Apple / AT&T - For years we'd see correlation in the values of Apple and AT&T around the time the new iPhone came out each year. This is because, in the unveiling announcements, Apple would generally also announce that the new version of the iPhone would only be available through AT&T. As a result, Apple got a boost from the product release and AT&T got a boost because they were the exclusive providers of the phone.
How To Use Correlation Data To Make More Money Trading Binary Options
This part is the relatively simple part. Once you understand what correlation data is, it's easy to exploit that data to earn more money. Nonetheless here are the steps to doing so...
Step #1: Choose An Asset To Trade - As you would any other time you want to trade binary options, find a predictable asset that you'd like to trade.
Step #2: Find Correlation Data - Now, it's time to do a bit of research. Type the name of the asset into Google and look for data that ties the movement in the value of your chosen asset to the movement in value of another asset.
Step #3: Exploit The Data To Make More Money! - Now, when you make your educated trade that you're sure you're going to win on, make a separate trade on the second asset based on the correlation in price movements between the two. This way, when you win, you win double!
Great Posts From Around The Blogosphere
5 Investing Lessons To Live By - This is an absolutely awesome post by Jon @ Money Smart Guides. In the post, you'll learn about 5 of the most important lessons you need to learn to be a successful investor!
Google Is The New Resume - Stephanie at The Broke and Beautify Life wrote this awesome post that explains that your new resume is a simple search of your name!