As simple as the basic premise of binary options trading is, there are a few skills that need to be mastered if consistent profits are to be earned. There are two primary forms of analysis, technical and fundamental, and a combination of the two typically produces the best results. There is a time commitment that goes with analysis. However, there are ways to simplify the process, saving time while still producing an accurate forecast of the upcoming price movement.
Let’s first consider technical analysis, as it is the more complex of the two types or research. This form of analysis is completed using one or more charts. For the new trader, the basic price chart that is provided within the broker platform is an excellent starting point. With that said, this chart should not be relied upon over the long-term because it only provides limited information. Typically, these charts provide information for up to the past 12 hours, which is displayed in the form of a continuous line that moves up and down along with price movement.
Charting tools such as MetaTrader are available for free online and can provide much more information. Although they can seem very complicated at first, they can be customized to provide only the most relevant information without all the extras. A great place to start is with a basic candlestick chart. These candle represent price action via not only their placement within the chart, but also their color, wick size, length, and more. Anyone who plans to trade binary options over the long-term would be wise to first learn what each of the candle formations signify.
Fundamental analysis is easier, requiring only that you seek out any market reports that are related to the asset you plan to trade with. As a general rule, positive reports send asset prices higher, while negative reports have the opposite effect. There are two types of reports that may impact asset prices, economic and financial. Economic reports are linked to things such as employment, interest rates, GDP, and more. Financial reports are linked to individual companies and tell how well off the company is financially. These reports will include earnings reports, which are closely monitored by investors.
The aforementioned data is at the heart of fundamental analysis, but what is more important is having the ability to determine how the data is going to impact investor sentiment. How the majority of investors are feeling towards an asset means everything in terms of price. Negative feelings often lead to too much selling, creating bearish market conditions. Positive feelings often lead to lots of buying, creating bullish market conditions. Either circumstance can be profitable for the binary options trader.
Each trader is likely to develop their own personal analysis strategy over time. What is most important is that you find what works for you. There are some basic guidelines for both technical and fundamental analysis, but there is still plenty of flexibility in regard to exactly how you’d like to go about things and which tools you want to use. Analysis need not be overly complex in order to be accurate, but never disregard the process entirely if you plan to profit from trading binary options.