Getting started with any type of financial trading can be daunting, although given it will have been your choice, you will also have a positive approach to finding out everything you need to know in order to enjoy success and be as profitable as possible.While most people find it easy to pick up the use of a trading platform, the analysis, always crucial for making confident and sensible trades, tends to be the thing that people struggle with. This can often lead to people beginning to trade without having the knowledge they ideally should have. New traders can often get away with this when trading on other platforms, such as foreign currency, stocks and shares, and commodities. This is because it is often easy to manage losses through selling before a price drops too low, while there is also widespread media attention given to these markets, especially by regularly used resources such as newspapers, who will often have large sections dedicated to financial news and various markets both online and in print.Binary option trading does not get the press attention of other markets, generally because of the major differences between binary trading and other types of financial trade. An effective daily news summary of binary options would be impossible to create, because you could be trading any market. Instead, binary traders can instead read the regular finance pages and look for trend analysis in order to target specific trades.There is no question being able to analyse trends within binary trading is more critical to success here than it is when trading commodities or foreign exchange, for example. As previously alluded to, with the other markets you can often take a punt and then reactively manage a loss. In binary trading, an option will finish either in or out of the money, meaning taking a punt is an extremely foolish thing to do. Do not mistake binary options trading for gambling; it only becomes a gamble if you do not carry out the analysis you should do and start trading blind.
What is Technical Analysis?
Technical analysis refers to the study of price charts, trends, and market movement so that a trader can forecast with a degree of confidence whether a market will move up or down, and therefore make the call or put trade that is going to see their binary option end in the money.Beginners can get confused with binary option technical analysis, ironically because it is as simple as identifying whether you think something will go up or down. It is not like viewing charts for a particular commodity where a trader or an investor might look at calculating the best price to buy at, when they want to sell, and how much of a particular asset they need to buy to achieve a particular level of profit.When talking about technical analysis, it is important to recognise that many different things fall under this umbrella. Rather than talking about how you carry out your technical analysis, we need to talk about the different types of technical analysis that will serve you well as a beginner, help you to use them so they become useful when you become more experienced, and look at how they can fit into your overall binary options strategies.There are four types of technical analysis that are generally used by binary traders; the first three we look at below are the ones that should provide the most help for beginners and enable you to get started with trading at Bank of Trade.
This is perhaps the easiest type of technical analysis to carry out, as it involves looking at the historical data available to you as well as the “real time” movement of markets and determining when a price is likely to increase or decrease. Because you can trade binary options over minutes as well as longer periods, it is also important to look closely at how markets behave at certain times of the day.For example, you might look at a market and see that it is generally steady with a consistent price, and not much movement over the long-term. Let’s say that the last month has been virtually flat, with only a handful of points between the top and bottom prices. However, looking closer might show you that a particular market always sharply grows at the start of trading, or on a specific time on a specific day of the week, for example.You should also make this analysis of the “bigger picture.” So, if the price of a particular asset has been steady for six months, upwards movement does not always mean there is a trend happening (see mean reversion in the next section). However, if a look at yearly charts shows you that the asset has steadily grown, you can ascertain that this new movement is in fact following the longer-term trend.The biggest lesson you can learn with trend following is to look at the data most relevant to your trade. If you are buying 60-second options, then look at minute-by-minute breakdowns, likewise whether you are trading in hourly trades, daily, weekly, or longer-term binary options. The longer-term the binary option, the more idea you’ll have of how to trade based on historical trend following, but you have to balance this against not knowing what might happen in the next few weeks or months, particularly owing to external factors.
If you become adept at mean reversion analysis, you will be able not only to take advantage of breakouts but also to profit from a put trade as the price comes back down. There is nothing complicated about mean reversion, it is exactly what it says. You are looking for markets where prices might periodically fluctuate but where they ultimately return to a specific average price or range.For example, in the example we gave related to trend following above, we spoke of a price that had remained steady for six months. Let’s say that the price at the start and end of this period was similar, but there had been many peaks and troughs, some large, indicating potential breakouts, and others small. If throughout the six month period these had all return to a point at or around the original price before stabilising again, you can see that mean reversion is happening.As well as using this analysis to profit from short-term trades and to trade successfully when traders who buy and sell the actual assets will be staying away, it can prevent you making losses by taking out ill-advised longer-term trades.
Studying the momentum of a market can be useful both for short-term and long-term binary trades. This goes further than merely trend following, and involves the comparison of short-term trends against long-term ones. What you should do is calculate whether the short-term increase or decrease of the asset price outstrips that of the long-term equivalent. If it does, then the asset has momentum and you should be looking to place the relevant trade. You should combine momentum studies with mean reversion if you are looking at trades that are one hour or longer, and even remember what you have learned about trends. This is because price momentum can last a matter of minutes; if you haven’t looked at everything available you might place a trade assuming momentum when in fact means reversion is happening.Does an asset gain momentum in the morning, or at the start of the week or month, for example, before reverting to the average later in the day, week, or month? Try to find a binary options broker that offers momentum analysis, or find a software program that does it for you.
This very technical type of analysis can lead to high profits for traders. Pattern return analysis is something you should keep in mind to study and use later when you have gained some experience with binary trading and are confident in formulating your own binary options strategies.You will need a specific tool to carry out pattern return analysis – known as a stochastic oscillator. This tool calculates and predicts closing prices based on previous trends, price patterns and momentum, and can help you act before trends have been established. However, you should understand this is not a failsafe to guarantee successful trades, but something that you can build into your analysis should you wish to do so.
Technical Analysis Tools
While you can take advantage of a number of technical analysis tools, you should also dedicate the time to ensuring you can understand everything related to these practices yourself. Your aim should be to become competent at carrying out your own analysis so you can act confidently without using tools. Use them when you are getting started with binary trading, and as you grow your own knowledge start to carry out your own technical analysis. When your manual analysis is starting to match that of your tools, you know you are ready to move on and confidently trade yourself.
By opening your binary options trading account with Bank of Trade, you can get started immediately on learning everything you need to know about technical analysis, and set yourself up to make healthy profits from whatever binary trades you get involved with.