Pull Strategy, Knock-on Effect

Pull Strategy, Knock-on Effect

Part of the learning process of those new to binary options trading is learning the different trading strategies and finding out which ones work in different circumstances. One of those is the market pull strategy, which is so called because something that’s happening in a market or elsewhere will affect the price of assets within that market.

This type of strategy does require a certain level of knowledge and is often thought to be only suitable for experienced traders. However, if you are reasonably familiar with a market and undertake thorough analysis, you should be able to apply the strategy with good effect and make a profit as a result.

One example of a pull strategy is when an event occurring in a country may cause a change in the value of its currency against another one. You may hear that US trade figures are to be announced that will be much worse than expected and are likely to cause the value of the Dollar to fall against other currencies. If good news is due from the UK government, on the other hand, that may cause the value of Sterling to rise.

Consequently, you may go for a pull strategy and purchase a put option on the value of the Dollar against the British Pound because you expect its value to fall. Conversely, you may buy a call option on the British Pound against the Dollar if the former is likely to increase against the latter. Currency pairs can be looked at from either direction when using a pull strategy.

Knock-on Effect

A market pull strategy is sometimes referred to as a knock-on effect because an event that occurs can affect something else that may not appear to be directly related. What you need to do is understand how the different assets are connected because, if you can do that, you’ll be able to predict successfully how the price of an asset will change when an apparently unrelated event occurs.

Global weather can have a knock-on effect on all sorts of things and cause you to adopt a market pull strategy. A hurricane going through the Gulf of Mexico, for example, may shut down oil production there. This is likely to not only cause the price of oil to rise but a knock-on effect is that the stock price of companies that process it may also increase while those that rely on it may suffer a fall.

A major product launch by a company may cause its stock price to rise but a knock-on effect is that the price of its main competitors will fall. There are many other examples and a market pull strategy can be profitable. You just need to recognise the connections and follow events to successfully predict what’s likely to happen.