Technical analysis of options

Since the advent of binary options in financial markets, they have been viewed as a speculative way of making money on the Internet. This is due primarily to the short-term nature of their trade, compared with traditional options. In most cases, binary options have validity periods from 60 seconds to 2 weeks.

That is why most traders tend to focus more on technical analysis than on fundamental analysis, ignoring the fact that the price of the underlying asset can significantly depend on the fundamental forecast.

Definitely, technical analysis for binary options is a very important component of successful trading, but it is extremely important to use it together with the fundamental one. Why do they play an equivalent role?

What is technical analysis?

In order to successfully trade an option, technical analysis is necessary. It is important to know the basic technical indicators that you can use for trading. Assets offered in the market of binary options are the same as in other markets. This means that traders have access to the same chart data, statistics and analysis strategies that are used in other markets. Each bidder should know how to use indicators to predict market behavior.

The technical analysis of options is entirely based on chart data, the identification of recurring trends and creation of speculation based on the collected information. It can be divided into three categories:

1. Use and analysis of diagram information (candles and samples).
2. Use of price action.
3. Use of technical indicators.

Using Chart Information

Data charts are relatively easy to read if you have some experience and knowledge about how they work. Reading the information provided by the candlesticks, you can easily predict the price movement in the future of a particular asset. Candlestick analysis of binary options is the number one assistant for each trader, because he can form patterns and give valuable information about past, present and future trends. There are many templates of candlesticks that you can use to predict the movement of the price of an asset, so feel free to look for more information and get acquainted with all the templates.

Using the price action

The accuracy of technical analysis can be improved by using the analysis of price action. Of course, for this you need to have access to a level II pricing system. Unfortunately, this function is not provided by many brokers, so you need to initially take care of this issue.

Using the analysis of option charts and the impact of the price, you can see the trading volume that a certain asset generates. In addition to the total trading volume, you also get information about the actions of other traders - whether they sell the asset or buy it. For example, if many people sell the same asset at the same time, then its price is likely to begin to decline. If you notice that a certain asset is traded in one direction and in large quantities, then it is very likely that its price will follow this direction. If the asset is bought, the price will increase, and vice versa.

Use of technical indicators

Technical indicators are not always necessary, but they can help you in forecasting. Most traders prefer to combine them with candles, because they either support or contradict the data that you get from them. There are several types that fall into two categories - trend indicators and dynamics indicators. Both types are used for trading assets such as binary options. Analysis of the schedule should be carried out in combination with other indicators.

The relationship between the two types of market analysis

As already indicated, it is necessary to simultaneously analyze the options market. Ignoring this is a huge risk, and traders should actually conduct a serious investigation before placing their deals. Analysts agree that for success in trading binary options, traders should use both technical and fundamental analysis.

According to experts, binary options are a short-term method of making money on the Internet, so traders can not ignore the role played by the internal aspects of the underlying assets (which are of a long-term nature). This is explained by the fact that the price movements of stocks and indices are usually determined by the activities of traditional investors (exchange trading activity), and they base their decisions mainly on a fundamental analysis.

In general, a fundamental analysis of options is an asset valuation method based on both internal and external factors that can affect its price over a certain period. Such factors include macroeconomic events, interest rates, financial and political policies, as well as the environment. When assessing resources, positions such as price-earnings ratio, profitability, events and changes in management, as well as insider / institutional investors' operations can affect the price of the underlying asset.

Fundamental analysis of the market of binary options

Currently, in binary options, traders have the opportunity to trade currencies, stocks, indices and commodities through the same platform.

However, as many traders are convinced, there are few analysis tools in the analysis of stocks and other assets. Therefore, professionals try to use the trading platform in conjunction with third-party analysis tools and advisors. Most often this applies MetaTrader 4 for the analysis of the price of the underlying asset.

However, for some assets (such as stocks, for example), the MT4 platform may not be an ideal tool, especially when trying to analyze the fundamental aspects. In this case, traders should refer to websites or programs that provide financial data on stock trading and general investment. Some of these platforms also provide timely information on market-related events, such as insider transactions and news that can be very useful, and as a result help traders make sound investment decisions.

How does it look in practice?

For example, if an insider is in the top position on Twitter, the shares of Twitter are likely to react accordingly. Knowing this aspect in time can help traders make the right choice. Typically, long-term investors are more interested in tracking the actions of leaders (institutional investors and hedge fund managers), especially given what they add to their holdings. At the same time, it is much more important for traders to monitor their activities as quickly as possible, because it is important for them to determine in what direction the price of the stock may change in the forthcoming trading sessions.

This is especially important for traders who trade in binary options, because with many platforms you can now trade in shares of Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) and Barclays (ERO). Therefore, if a market participant wants to have the right picture before his eyes, before making a deal, it would be right to also understand what positions the main holders hold in a particular stock. This gives a signal about what can be the general direction of the resource (that is, going up or down), taking into account the trends shown by the main holders.

Interconnection in practice

Most binary options are short-term, but some of the leading brokers have varieties that last for months. Some of them even have validity periods of up to a year.

This means that a fundamental analysis of options, such as P / E, P / S ratios and profit growth, can be applied to trading these types of binary options, and, most importantly, traders can use more than just technical opinion when making Their decisions.

Thus, traders can make more accurate decisions, because in this case it's not just about interpreting technical data to predict the next step. The use of fundamental analysis in these types of binary options is likely to yield more than just the use of simple technical analysis, because many events must necessarily occur before the expiry.

What is trade reduced to?

With binary options, you only need to correctly determine the direction of the price in order to create a return potential of over 80% among most brokerage platforms and thus the correct forecast is the difference between how you get 80% of the return on your investments or lose everything. Therefore, it is important to take into account everything that could affect the price of the asset in question, and this implies a fundamental analysis.

The bottom line is that a fundamental analysis of options is the cornerstone of investment, and any kind of such trade, including binary options, relies on this type of analysis when making the right investment decisions. Therefore, traders should not miss this kind of analysis, even when trading short-term instruments such as binary options. This can be the difference between making money and losing everything.

Conclusion

One of the problems that traders face when they start working with binary options is that they may not have access to some of the most popular technical indicators and charting tools. That's why it's very important to check your broker's trading platform and see if it gives you access to the most important functions. Make sure that you take full advantage of the tools provided by your broker, because with their help you can significantly increase your chances of successful completion of transactions.