Although trading binary options is much simpler than other types of online trading, you need to know how to study and analyze the market to really succeed in trading binary options.
How to Analyze the Market in Binary Options Trading
Success is less about luck and more about your ability to trade according to market conditions.
There are two types of analysis in binary options trading. These include
a. Fundamental analysis
b. Technical analysis
How does fundamental analysis work?
In binary options, you can trade different sorts of assets including currency pairs, stocks, indices and commodities.
External factors usually impact on the value and the behavior of these assets. These external factors could be geopolitical occurrences such as wars or diplomatic spates between countries, environmental factors such as drought, floods and resource shortages, economic data, political events such as elections, just to mention a few.
These factors happen on a daily basis and they can affect the value of assets. For example, if there is war in an oil producing country such as Nigeria or Venezuela, the prices of oil are likely to be highly volatile. This will also affect stocks for companies in related industries including the automotive and industrial production industries.
Currencies are typically affected by economic data and central bank comments and decisions. Stocks respond to companies’ position and financial performance; the overall economic performance of a country can positively or negatively influence stocks. Commodities usually respond to economic, social and political conditions; commodities primarily respond to the basic laws of demand and supply.
Most traders use fundamental analysis to predict the price movement of an asset. After all, the events that happen locally and globally affect market sentiments and in turn, assets respond to these market sentiments. This is why it is recommended that traders keep up with market and financial news to be able to make sound decisions when executing their trades.
In addition to keeping up with daily news, traders also use the economic calendar for fundamental analysis. A comprehensive economic calendar will provide vital information including high, medium and low economic indicators for a certain economic region.
Economic calendars are automatically updated to provide the most recent economic data about a specific economy. The calendar will mostly provide you with information about highly volatile indicators such as inflation rates, consumer sentiments, indexes coming from industries, gross domestic product, jobless numbers etc.
How does technical analysis work?
Technical analysis is used in the evaluation of assets and the anticipated fluctuations. In essence, technical analysis entails studying market trends and applying these trends in your trading strategy.
At the heart of technical analysis are the assumption that once a trend begins, it will likely go on for a specific period and that traders will likely react in the same way they did when the trend first took shape.
In many ways, technical analysis is based on the evaluation of economic history.
Traders who use technical analysis are keen on establishing price patterns, which they then expect will continue in that way for a given time.
It is common to find technical traders who try as much as possible not to be overwhelmed by market news and instead focus on pattern formation.
In summary, trading and indeed price patterns do not occur in a vacuum—they are affected by fundamental/external factors. As such, it is not entirely possible to ignore fundamental analysis if you want to raise your level of success when trading binary options.
Both methods of analyzing the markets are essential and complement each other. While technical analysis tells you the best time to enter and exist a market based on historical performance, fundamental analysis gives you the contexts that may affect the price movement of a particular asset.
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