Analyzing Binary Options

It is readily apparent even to new investors how thousands of factors are involved in the direction that assets move. But successful traders are able to analyze the information and make educated predictions before they choose their options. Binary options requires a sound financial mind to make your investment grow. A new trader cannot just sign up in a binary options broker of his choice and start trading without the fundamental knowledge of the market. He can, but it is not a wise move since binary options without informed decisions results to a nature of gambling.

Analysis is therefore important before purchasing any binary options. When analysis is done, the trader is more equipped to make the right call or put options, if the market trend for a specific time is carefully analyzed. There are two main ways to analyze the market, through fundamental analysis and through technical analysis. Both methods may be used independently or in conjunction with the other.

Elementary Analysis for Binary Options

Whenever a trader trades binary options, or trades any market options for that matter, he or she needs to know with the trends in the market in order to make informed decisions. From this information, the trader know whether the price of an asset goes up, or down, and he can trade accordingly. This is the safest way to trade binary options, and most experienced traders have been successful because they are informed.

Elementary analysis is the fundamental method of prediction that looks into facts that are available to a trader to come up with an idea on how the market will move. These facts about market movement may come from world and economic news, public statements from companies, local news reports, current events on the local and world market, and virtually everything else that might impact the value of an asset. The elementary analyst then examines the collected data to try to predict new trends in the market.

Elementary Analysis Example

Let’s take for example a trader who is looking at currency pairs. He might watch for a public report from a country on their GDP, or an announcement from their central bank. An equity trader might look at what a company’s quarterly reports show about their performance, or listen to announcements from a CEO to gain some insight into the direction a stock might take. It is important for an elementary analyst to keep both a broad view and a specific view, noting what is happening in the world at large, as well as what is happening on the micro scale with regards to specific assets.

Elementary analysis is highly subjective. This means that unlike other objective analysis techniques, different traders may have different interpretations of what a CEO’s announcement means about the health of the company, or how a natural calamity will affect the price of oil
Because there are no rules set in stone, elementary traders are generally referred to as discretionary traders, using their own judgment to decide the course of action to take after analyzing all the data they have acquired.

Advanced Technical Analysis for Binary Options

Advanced technical analysis for binary options is the process of analyzing statistics and numerical data about specific options in order to create more accurate predictions on which direction an underlying asset will move. Many different methodologies are used in technical analysis. These methods can both objective and subjective, and each trader has his own interpretation regarding each method. The methods for advanced technical analysis include trend following, means reversion, momentum tracking, and pattern recognition.

Principles of Advanced Technical Analysis

Advanced technical analysis is the quantitative study of prices and volumes in order to predict the price of an underlying asset such as stocks, currency pairs, indices or commodities. Advanced technical analysis can help traders determine what is likely to happen in the future so that they can make accurate predictions regarding market moves and receive high returns on their investments.

New traders are also advised to master the following methodologies to maximize their returns and have a good trading experience.

Trend Following

Trend following is a form of advanced technical analysis that looks in historical data of an underlying asset to see if a trend is occurring. A trend is basically defined as any sustained movement in one direction. By looking at the historical moving average of an asset, a trader can determine whether or not a trend is developing. Then, he can make a prediction according to the trend, lowering his risk on his investment.

A Trend Following Example

A trader is interested in purchasing gold and wants to see if there is an established trend. The trader looks at the 2-day moving average for gold, as well as the 5-day moving average for the asset. If the 2-day moving average has crossed significantly either above or below the 5-day moving average, the he can safely assume that a trend has developed, in either an upwards or downwards direction. He now purchases a call or a put option based on the trend.

Means Reversion

Binary options assets may rise or fall. If a trader is able to compute the mean or the average price of an asset, he can use this to his advantage to predict general range of the price where an asset expires. This method can be used for High/Low, Touch/No Touch, and In/Out options. It is up to the trader to use the mean price information of an asset correctly to accurately predict the next movement.

The concept behind means reversion is that assets tend to settle back towards their mean. If a trader can determine the mean of an asset, it will make it much easier to predict the direction accurately and get the high return on the investment.

Momentum Tracking

Momentum tracking is a common method used in advanced technical analysis. From the term, this method employs tools that track the momentum, or how an asset price changes with time, to create an accurate prediction on where the price will strike next. When a price is moving up quickly, a trader can make a specific call or put option based on the price movement and expiry time.

A tool used for momentum tracking is called the Moving Average Convergence Divergence (MACD). By using MACD, a trader can determine whether the momentum of an asset is rising or falling, and place their trade accordingly. Calculating momentum is quite a complex process, but once an MACD indicator is determined, it can be used to track the day-to-day changes of short-term and long-term averages. If the short-term averages are generally larger than the long-term averages, momentum can be said to be increasing, while if short-term averages are smaller, momentum is be said to be decreasing.

Pattern Recognition

Patterns in the movement of a price can be made with various tools available to the trader. When technical traders look for patterns in the movement of an asset or sector of the market, they can make an accurate prediction as to where a price will land after a specific time frame. Using the advanced technical analysis can be somewhat complex, and false-positives may cause a trader to invest unsuccessfully. But if properly used, pattern recognition can lead to long-term profitability.

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