Making any financial investment or commitment without first doing your homework is foolish at best, and downright negligent and careless in the extreme. However, many people do this habitually on a daily basis. Whether it is choosing the brand of canned food they are going to buy or the financial option they wish to trade, many reduce life to a series of gambles and punts.This is the last thing you want to do when dealing directly with financial affairs, and especially when dealing with binary options. Binary trading offers the potential for lucrative returns, so why wouldn’t you want to look at every binary chart and get all the information available before getting started?We understand that when you discover something as exciting and as potentially lucrative as binary options trading that haste can take over. Yet, it is surely best to learn about reading options charts and giving yourself the time to take in as much knowledge as possible. This way, you increase the likelihood of seeing returns from your trading activities at an earlier stage.
Getting Started with Binary Trading
The rise of online binary trading platforms and others like foreign exchange and commodities trading platforms have been fuelled by the fact they are so accessible. You cannot become an accountant or a leading stockbroker without having the necessary qualifications, but you can use online trading platforms. At the same time, there is no certificate that says you have become competent at reading option charts or can make sensible trading decisions.With this in mind, your approach to binary options needs to be realistic and honest. Ultimately, it is your own money you are putting at risk if you fail to ‘look before you leap,’ and it doesn’t take too much time to learn how to read an options chart anyway.Safe in the knowledge that anyone can get involved with binary trading, you should find a platform that provides an extensive range of options charts, like we do at Bank of Trade, although you can also download binary chart software if you would prefer to use something standalone. If you want to learn more before you get started, take the time to explore the wealth of knowledge and resources across Bank of Trade, including information about spotting trends and reading charts when you have mastered the basics.For those are 100% new to binary options trading, we have summarized what it is all about below.
How Does Binary Trading Work?
Binary options’ trading is unique among other types of online trading. The big difference is that, unlike with stocks, commodities, or foreign exchange, you are not actually buying an underlying asset. In these ‘traditional’ methods of trading, you buy the asset at a particular price, and the profit or loss you make from it depends solely on the price at which you sell, as well as how many units of each you own.When you trade binary options, all you are doing is forecasting whether you believe the price of these assets will go up or down. You are trading against the performance of them, not earning or losing based on the price itself.Another major difference is that binary options represent an “all or nothing” type of trade. Therefore, when you trade binary options, you simply say whether the price of something will increase – known as a ‘call’ trade – or decrease – known as a ‘put’ trade. If your trade ends “in the money” – the price increases or decreases as per your forecast, you receive a return normally ranging around 85%. If it doesn’t, you lose your initial investment.One of the main advantages of binary trading is that you know what the potential returns are before you make a trade, as your platform will tell you what you make if your option ends in the money. Contrast this with ‘traditional’ trading, where you simply buy and hope that the price goes up, and have no idea what your potential return is.Therefore, all you need to learn about reading a binary chart is how to tell whether something is trading upwards or downwards; you do not need to worry too much about to what extent the price will go up. One final advantage of binary trading is that it allows you to trade and make money even if markets are stagnant or generally falling in price. Again, this is made possible because you trade against the price and do not actually take ownership of an underlying asset.
Using an Option Chart to Pick Your Trades
You cannot hope to be successful with binary trading if you do not know how to read options trading charts. Yes, the returns from binary trading are potentially lucrative, but as with any type of financial trading, the losses can fast mount up if you do not know what you are looking for.
What is an Options Chart?
The easiest way to describe an options chart is as a visual demonstration of how a particular asset has performed through time. Using such a chart, you can look at whether an asset is currently trending upwards or downwards and the previous history of the price in both the short and the long term.This is essentially all an options chart is. While they might look simple and show you a pattern and trends, how you use them is all-important. For example, looking at a single binary chart on its own is worth doing, but it is even better to look at a number of them in conjunction with one another. This is because you can then identify which assets are ‘safer’ trades; some will consistently trend upward before trending downwards and following a set pattern, while others might look like a useful trading opportunity but actually not be as stable as others are.
Binary Chart Analysis
Having access to option charts is one thing; being able to interpret what they are saying is quite another. The problem many beginner traders face is that it all sounds simple when reading about it, but when confronted with your account and a selection of binary options trading charts on Bank of Trade they can be very intimidating, and give you a headache within seconds of you analysing them.What you need to do is forget about this. While ‘experienced traders’ might try and sell you a PDF that promises to share the secrets of how they read charts, the majority of these offers achieve nothing but to confuse the issue. You need to keep it simple; do not spend your time over-analysing option charts for any hidden trends, because they are not there. Remember, binary trading is “all or nothing,” and you are trading based on whether a price will increase or decrease, so you do not need to look too deeply at charts to try and spot the best “buy point” or “sell point.”
Spotting Trends with Trendlines
Using trendlines is the best way to spot trends on options charts. If your trading platform doesn’t put these onto charts for you, they are easy to spot and use yourself. All you are looking for is tops and bottoms – movement of a price upwards or downwards – to determine whether there is a trend or not. Three consecutive movements in either direction is indicative of a trend.Trendlines are excellent for short term binary options, because if you spot a trend just as it is starting you reduce the risk you take when placing a call or put trade.
We can think of trends as a short-term, what is happening now type of thing. Looking at the bigger picture of option charts, you can then start to spot patterns. These might be related to the price range of a particular asset, so you can place trades with confidence as you grow your own knowledge, or how certain assets behave at certain times. For example, a keen trader might spot that a certain currency or commodity always seems to jump as soon as the markets open, meaning a 60-second call trade could deliver a high probability of returns from this one asset on a daily basis.Get used to spotting trends and creating trendlines first, and then move onto observing patterns and looking at the bigger picture when you gain knowledge and confidence. Remember always to look at the right option chart relative to what you are doing; if you are trading day options, a minute-by-minute breakdown will not tell you much, while the opposite is true if you are trading 60-second binary options.
Beginner Trading with Bank of Trade
Opening your binary trading account with Bank of Trade means you can instantly access free option charts and start learning everything you need to know about reading options charts as well as about binary option trading in general.Leave nothing to chance and learn as much as you can, and you will be in a great position to profit as much as possible from your binary trades. Remember to take your time when learning and do not jump straight into trading, but grow your confidence so you can start making sensible, evidence based decisions based on option charts and, in time, your own experience.