The knock-on effect is also known as the market pull strategy. As the name suggests, the underlying idea behind this strategy is that the price movement of a certain asset will have a ‘knock on effect’ on another asset i.e. the price movement of one asset will impact another asset.
Trading Binary Options with The Knock-On Effect Strategy
Advanced and intermediate are best suited to apply this strategy to maximize their profit payouts.
To fully leverage the effectiveness of the market pull strategy, traders require a thorough understanding of how the markets interrelate and the workings of options signals. Only by understanding how the markets interconnect will you be able to take a call or put position based on the changes that take place in the price movement of an asset. Remember that a change in one asset affects the other related assets.
How to apply the knock-on effect strategy in binary options trading
The price movement of assets on the financial is dependent on factors such economic data, financial announcements and political trends. All these factors are intimately intertwined so that a political event such as elections could affect the market performance of stocks on the financial markets. This is where the concept of knock-on effect is derived.
The first step to trading binary options with the knock-on effect strategy is identifying how the assets you want to trade are related. For example, when the value of the US dollar shifts, it is likely to impact on the value of other assets. At the same time, when the price of oil rises or declines, the value of the Saudi riyal increases, or declines with these fluctuations in the market price of crude oil, given that Saudi Arabia is one of the largest producers of crude oil. As mentioned, the knock-on strategy is applicable to any asset combination whether that is currency pairs, currencies and commodities, commodities and indices, etc.
The second step is identifying an event that will considerably affect the price movement of an asset. This entails using fundamental analysis to be able to monitor the trends. Then, technical analysis will allow you to examine the historical price movements of your two chosen assets. Once again, a trader must have a solid understanding of how the assets correlate to effectively execute trades with the market pull strategy.
Here’s is an example of the knock-on effect strategy works:
Say Facebook stock are trading at a value of $76 .75. Using technical analysis, you will be able to identify how Facebook stocks have affected the NASDAQ over the last several months. Say you notice that the NASDAQ moves in a similar direction as the Facebook stock thirty minutes after the stocks data is released. To capitalize on this trend, you could wait for the quarterly stock data to be released and if Facebook’s stock value is on the rise, you could take a CALL position on NASDAQ. If according to your predictions the NASDAQ rises in the same direction as the Facebook stock, the trade session will end in the money.
The opposite scenario would be applicable if you thought that Facebook’s stock value would fall against the NASDAQ soon as the stock data is released, but this does not happen. So, say that you take a PULL position on the NASDAQ and the Facebook stock spikes to $80.33, within your chosen expiration time, the trade session will end out of the money because your prediction was incorrect.
Overall, the reason why the knock-on effect strategy is very popular is its versatility- the technique is applicable to any asset combination. Mastering the interrelationships between different financial assets is essential to making the most of this strategy.
Why use Knock on strategy?
The Knock on strategy is one of the most used in binary options strategies because it is more profitable than others when trader can recognize interrelationships among assets or currencies or others. Usually traders that use this strategy have monitoring for long time market movements and are arrived to establish when call or put binary options with knock on strategy.