Fundamental analysis is an extremely important part of trading binary options successfully. This form of analysis focuses on the changes in investor sentiment which stem from the release of various economic data such as earnings reports and economic data. The importance of using an economic calendar to pinpoint key opportunities cannot be overstated. In fact, many traders use this tool as their sole means of identifying profitable trade setups.
There exists more than one type of economic calendar. Some tell only which data releases are scheduled to be published on specific date and time. More detailed versions include actual data, as well as analysts forecasts for how that data will change. Investor sentiment is closely linked to these forecasts and the bottom line is that sentiment is what impacts asset prices. When the actual data is not closely in line with the forecasts, traders can expect changes to occur.
As a general rule, when the actual data is much worse than what has been forecast, the price of any related assets are going to drop. The opposite occurs whenever the data is much better than the forecast, with related assets increasing in price. If the data is not much different than what has been forecast, expect related assets to remain relatively stable. This would be a great time to make use of Boundary trades if your binary options broker provides them. Boundary trades rely on price stability, with the price needing to remain between two price points in order to yield a profit.
Expect the price of any asset that is related to the upcoming data release to be quite stable just prior to the data being published. The reason for this is simply that investors often take the “wait and see” approach before taking any action. This often creates a lull in price movement which can come to an abrupt end once the data is published. Price movement can be quite swift once the numbers are published, so it is wise to be logged into your chosen platform and ready to trade.
The best possible scenario for traders would be that the realized numbers do vary quite a bit from the forecast and a price trend begins. Clear and well-defined price trends are the most profitable type of price action for all who trade binary options because they make the selection process easier. Remember, with the basic trade type you are only trying to predict whether the price of your selected asset is going to be higher or lower than the strike price when the trade concludes.
Although an economic calendar can provide you with plenty of helpful information, it should not be used as the sole means of analysis. Price charts should also be used to identify the actual price movement, support and resistance, and potential breakout points or price reversals. The use of more than one indicator will help to verify the upcoming price action and in doing so reduce the overall risk associated with each of your binary options trades.