When trading binary options, one of the most important strategies to know with regards to maximizing earnings is the correlation strategy. Today, we're seeing a strong correlation that allows me to give you a prime example of how it works. The price of gold is rising; and since gold and Goldcorp have a strong positive correlation, gold is climbing as well. With that said, today we'll discuss what the correlation strategy is, what's causing gold to climb, why it's pushing Goldcorp up and how binary options traders can benefit from the trend.
What Is The Correlation Strategy
The correlation strategy is a relatively easy to understand strategy used by binary options traders to maximize their profit potential. This strategy is based on the idea that there are several assets that have either a positive or negative correlation. Here's how these correlations work…
- Positive Correlation – Assets with a positive correlation move in tandem. This means that when the price of one moves up, the other is likely moving up as well.
- Negative Correlation – Negatively correlated assets move against each other. This means that when one moves up, the other moves down.
Knowing which assets are correlated will help binary options traders to maximize their profit by taking advantage of multiple trades based on trends that surround a single event. For example, because gold and Goldcorp are positively correlated, traders can make the same trades on both at the same time as they tend to move in tandem; ultimately doubling their profits.
Why Is Gold Climbing In The Market?
Currently, there are two major factors that are causing the value of gold, and as a result, Goldcorp to climb in value. These factors include…
- Weakening US Dollar – First and foremost, it's important to remember that gold is priced using the United States dollar. Therefore, when the value of the dollar is high, demand for gold around the world declines as it becomes more expensive in nations outside of the United States. However, the United States dollar has started to see declines; driving the cost of gold in other nations down and increasing demand.
- Weakening Yuan – Perhaps an even larger driver of the bullish activity we're seeing around gold is the yuan. China has made the decision to devalue the yuan in the midst of the economic and market struggles the country is facing. This decision is causing Chinese investors to look to safe havens as a way to maintain the value of their money; and the biggest safe haven is gold. As a result, the value of gold is edging higher.
How This Affects Goldcorp
As mentioned above, gold and Goldcorp have a strong positive correlation; meaning that they tend to move in tandem. That's because Goldcorp's sole business is focused on gold mining and production. Therefore, when the value of gold climbs, the value of Goldcorp's flagship product increases; leading to more profit for the company and gains for the stock!
How Binary Options Traders Can Take Advantage Of The Trends
Because we know that the value of gold is climbing, and likely to continue doing so, we know that call options are likely to be the most profitable. Also, because gold and Goldcorp have a strong positive correlation, we know that Goldcorp is likely to follow the value of gold upward; making it advantageous to purchase call options on both assets. So, binary options traders should follow both assets; looking for points in which they meet support or near support. From there, traders should purchase call options on both assets; riding the trends up and making profit in both areas.
What Do You Think?
Where do you think gold and Goldcorp are headed? Let us know in the comments below!