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Market Analysis

Market analysis is a vital component of being a successful trader. For those that trade binary options, this is true as well. There are many different approaches to analyzing where you think an asset’s price will go, though, and this makes it especially difficult to prescribe any one approach. The two main approaches to this are called technical analysis and fundamental analysis. Both can be powerful methods, but only in certain situations. Knowing how to identify those situations and take advantage of them is going to prove to be very profitable to you.

Let’s start by defining each. Technical analysis is the use of price charts and complex mathematical algorithms to predict movement. This sounds very difficult to do, but you will find that pretty much every charting package out there can automate this process for you. Technical analysis, in fact, is actually quite simple from this perspective. Where things become tough is when you look at how many choices you have. There are dozens of indicators that you can look at—MACD, RSI, Bollinger bands, and price channels are just a few. If you attempted to use all of the technical indicators to identify a trading opportunity, you would never get anything accomplished. Finding which indicators work best for the asset class you are trading and which pertains best to the timeframes you are looking at will prove to be most effective for you.

Fundamental analysis looks at the asset itself and attempts to illustrate a picture of the general health of the asset. For example, if you want to trade stock binary options, you would want to look at the company in question, its profit/loss numbers, future projections, and past progress. This might not seem as intense or as accurate as technical analysis, but there is still a lot of information to take in, and this can be just as powerful (or more so, depending upon the timeframe) as using technical analysis methods.

Knowing what method is best can be tough. The general rule of thumb to follow is that the shorter the timeframe, the more heavily you should rely on technical analysis, and the longer the timeframe, the more you should rely upon the fundamental side of things. For the majority of binary options, you will want to use technical indicators, especially for 60 second binary options. But this is changing since more brokers are now offering longer options on their sites. A month long binary option should use fundamental indicators more predominantly than technical indicators.

Trading Technical AnalysisHowever, your best choice will be to incorporate some sort of melding between the two analysis methods. Binary options will be at their most profitable when you trade with the prevalent trend, and this can be more readily identified with fundamental methods. But short term trades will see very minute ups and downs, and the best way to identify these is through the small scale technical indicators. The best binary options traders will recognize these facts and use both, but they will also adjust their strategies so that, depending upon the timeframe, each method is used in the correct proportion.

There are other methods out there that can be helpful, but technical and fundamental indicators are the two most widely used approaches. Things like sentimental analysis, where you look at consumer and trader emotions, can be helpful for predicting when a trend will stop. Analyzing news reports—an extension of sorts of fundamental analysis—can also be helpful. Either way, you never want to enter a trade blindly. Having a method that you trust and that works for you will revolutionize your trading career and help boost profits immensely.

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