Working with a short term type of trading style requires the need to master the technical analysis side of things. Learning to pick which charts to look at and knowing how to appropriately read them is going to help you out a lot over the long term. Charts are an essential part of learning how to trade binary options; you will not be profitable for long if you don’t know the ins and outs of chart reading. You will also need to know how to apply the best types of technical analysis tools onto the charts so that you can gain a deeper understanding.
Binary Options Trading Charts
You might be surprised to learn that there are more than one type of charts. Basically, the more detail you can squeeze in, the better. This is why candlestick charts are the best for traders. Bar and line charts are great for some purposes, but no other type of chart is able to fit in the same amount of information in a small space that a candlestick chart can. Plus, these charts can easily be color coded and this can give you even more insight at a gland into exactly what your particular asset is doing. Whenever you can, choose a candlestick chart. One free option that you have is called FreeStockCharts.com. They offer a decent package to get you started, but you may want something more polished depending on your needs.
Time it right
Now that you know what type of chart you want, your search is not yet over. You need to pick the right timeframe, too. This is actually pretty easy. You want to start right where you are. So if you are trading 10 minute binary options, you want to look at a 5 minute price charts.
But, as you’ve probably guessed, it’s not quite this easy. You also need to expand your scope. Looking at the price chart for one notch up and one notch down can achieve this for you beautifully. Again, let’s assume that we are looking at 10 minute options. In this instance, you would want to look at both five minute intervals and half hour long intervals. This will give you a feel of the short term fluctuations that might occur for you and also will let you see the overall direction and trend that the market might be currently moving in. Both of these pieces of information need to be taken into account if you want to tackle this subject correctly.
If you are trading currency pair binary options, there is no greater charting tool than the MetaTrader. This is a real time software program that you will need to download onto your desktop. It will update currency price charts as price changes occur, letting you see firsthand every move that the market makes. If you have traded in the Forex market before, odds are that you have used this tool. Many Forex brokers will even allow you to trade directly from the MetaTrader charts that are generated. As of right now, you can’t do this with binary trading since they do not especially focus on currencies, but the extra program running on your computer should not be a problem.
When you are trading other assets, such as stocks, indices, and commodities, you will need some other charting package that will update prices in real time for you. There are several good programs out there that you can use, some of which you might have to pay for to use. It doesn’t really matter which you decide to go with, but make sure that the programs you are using will update in real time. Fast paced action requires your charts to update quickly or you will always be behind. This can be extremely costly to you because it will ultimately lead to you making errors in judgment, so the price that you pay for a real time price chart package will definitely offset itself for you over time.
You will find, with candlestick charts, that there are certain patterns that appear over and over again. These can be important markers of where an asset’s price is headed, actually, so you need to pay attention to them. The problem here is that there are so many patterns out there and many of them are not applicable to certain styles of trading. If you wish to use chart patterns to assist you with your decisions, some trial and error will be necessary. Look around at your trading behaviour and make sure that the patterns that you are looking at will actually be helpful to you.
Using a Journal
A trading journal will be of big benefit to you. Copy and paste the charts that you use into these journals and you will have a visual record of your decision making process that you can go back to learn new things. Google has a great way for you to do this, if you have a Google account.
Free Binary Options Charts
To some it may appear confusing to look at; when in fact, it is really easy to understand. Once you get everything loaded on the chart you will see exactly what we are looking at. Pivot, support, and resistance lines will tell you a story that will help.
First, we recommend you to get any MT4 charting package. All binary brokers have different price feeds, so it isn’t uncommon for you to see one price, while others see something different. This is why having the same charting package will make things even cleaner for you to understand the charts.
Here are some things you should consider on the charts after they are setup.
- You can edit the pivot, support and resistance colors in the editing area.
- The horizontal lines can also be adjusted size wise. This may make it easier to see for some.
A very important item to discuss is the price differential between the actual binary brokers. Prices change so fast that you may not see the difference, but there will be those times when you are questioning the broker for slippage. This price movement is just part of trading in general. There may be some kind of arbitrage trading strategy to look at in the future, but for now, be aware of these price differences.
Also, price on the MT4 chart will definitely be different than the price at the binary option broker because of the spread.Some spreads are fixed and other can change at any moment. The price you see on the chart is the bid price. In most trading formats there is a bid and ask price for buyers and sellers. With Binary brokers you see the actual price. This is something you should pick up on relatively quick.
If you are having a hard time understanding candlesticks, there is a course that will give you everything you need to know about charting. Steve Nison is the original western hemisphere guy when it comes to Japanese candlesticks and provides you with sound information which in turn helps you out with price action.
Once you get your chart setup at the particular broker of your choice you can then start watching price action around these lines. Remember these lines won’t always hold in the direction you want. They are guidelines to watch as price moves. You use them to make better educated guesses of what price will do next. Over time you will learn a lot about how price moves throughout the day. Once you’ve spent many hours in front of the charts finding solid binary trade setups will be much easier. The time you put in now, will help you save a lot of time and money down the line.
Another aspect of the MT4 charting package that we like to use are alerts. These alerts can be set to tell you when price has reached a certain level on the chart. This allows you to do other things and not miss a potential trade setup. There is a tab on the chart that let’s you set these alerts in seconds. These come in handy and also let’s you stay out of the market when conditions aren’t favorable.
It may take you some time to learn all the intricacies of the MetaTrader chart, but over time it will become pretty clear. There are a lot of different things you can do with them. Being a binary trader we use it for price action. If you ever decide to trade spot Forex, knowing these charts will come in hand. It’s better to get the education you need before risking your money.
*** Resource Information ***
A pivot point calculation looks like this:
Pivot(P)=(H+L+C)/3 Basic math will give you the calculation of the pivot.
Key = P=Pivot – H=High – L=Low – C=Close
The great thing about the indicator is that it does everything for you on a nightly basis. This means the plotted lines will not have to be calculated by you every night. It is completely automated. It’s a very nice feature to have as a trader.
Here is how you find all the resistance and support levels, using the calculation from above.
Resistance(R1) = (2×P)−L
R2 = P+H−L
R3 = H+2×(P−L)
Support(S1) = (2×P)−H
S2 = P−H+L
S3 = L−2×(H−P)
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