According to experts, the energy sector is in big trouble. Companies like TerraForm Power are seeing their stocks fall by 10 percent or more on a daily basis, the price of crude oil is currently under $40 per barrel, and the general chances of default for companies in this sector are higher than they have been in a very long time. For bears, this is a great market thanks to the volatility, uncertainty, and plain old discomfort that most companies are feeling right now.
This doesn’t mean that you can just blindly go short on an energy company and expect to profit. It only means that you have a higher probability of success than before by taking this approach. For starters, even TerraForm has been having outstanding days lately. They’re nowhere near their previous levels, but even in the midst of a crisis, they have had days where their price has attempted to make a rebound. Back in April, the company’s stock had climbed up over $40 per share and it now stands under $10, having lost more than 75 percent of its value. However, even in the middle of something like this, there are gains. On Friday, November 20th, the stock gained over 9 percent. This isn’t a ton as it ended up being less than a dollar, but the point is the same regardless of which stock (or any other asset, really) you decide to trade.
This is an important fact for binary options traders to take to heart. Even if an asset has a very clear trend going for it does not mean that it will stay that way for the life of your trade. It can be easy to look at a major stock, see that it’s going up, and put in an order for a call option. Even the strongest assets have bad days. Also, remember that the shorter the timeframe before expiry, the higher the degree of variance that you will face.
If you are intent on trading within the energy sector right now, it’s best to look at fundamentals first and identify your trading opportunities. Whether you go up or down in price doesn’t matter when you’re using call/put binary options, just be clear on what your goals are. Once you have a firm grasp on the fundamentals of your targets, then narrow down the list of your trade candidates from there.
For example, a look at Exxon Mobil’s stock. It’s trading below both the 50 day and the 200 day exponential moving average, which is typically a bearish sign. Although analysts have the price estimate as going up over the next 12 months, this is still something that has more downward momentum coming its way. This is a good place to start for your downward trades in the energy sector, especially because the company relies so heavily up on the price of oil for it to be successful. It also means that you should look at crude oil’s fundamentals before making a decision. However, because both Exxon and crude look like they are on their way down for the short term future, moving onto the next step in analysis is the next step here. Now, technicals are highly dependent upon the timeframe that you will be trading. As you formulate your trading plan, be sure to take timeframes into account before a single trade is executed. For a high volume stock like XOM, momentum is important, as is overall sentiment. Keeping track of all of these things can be tough, but when you do it successfully, you will find that your successful trade rate improves dramatically.