What does “Binary Options Analysis” Mean?
Binary options analysis lies in analysis of an underlying security. However, when doing binary options analysis, quite a few investors do not consider circumstances accompanying binary options having great importance. This means that right from the start when choosing an underlying security, you need to have in mind the factors impacting its price. This is required to anticipate all future changes. Therefore, when you invest in a binary option, you need to take into account its terms and analyze the underlying security within the context of a trade.
For instance, if you analyze an underlying asset on a daily chart and invest just for an hour, then the result you get is chiefly coincidental and depends on a set of circumstances rather than quality of analysis.
Binary Options Analysis
Your return on binary options trading mainly depends on understanding and accurate forecasting of a chosen underlying security. Most traders invest in binary options at the prices offered and take them for granted. However, professional traders distinguish a “cheap” and “expensive” price. To understand whether an underlying asset is cheap or expensive, you need to know what factors can influence the price.
If a price of an underlying security is at its peak, then the price is expensive at the moment. If a price is the lowest, then it is cheap.
However, price is a relative value. If a price of an underlying asset is very high, but you know that it can still rise, then at this moment the underlying security is still cheap, and you should buy it.
To understand this better, let us consider the stock of some large company, say, Google. This huge corporation owns thousands of companies around the globe, and each of them is innovative, advanced and has potential.
This company has a good chance to weather any financial crisis. As the company advances, the stock will keep rising.
However, during a day, week, or month, the price of the stock can fall. When you see this decline, this means that the price both decreases and becomes cheap. This is a buy signal to make a profit on the stock rise, for instance, next month.
If you understand why the price of an underlying security soars or plummets, you can pinpoint whether it’s cheap or expensive now, whether its price is overcharged or undercharged. To figure out it, you need to use both fundamental and technical analysis.
To understand prices, you have to compare different underlying securities and look for the most money-making options.
THERE ARE TWO TYPES OF BINARY OPTIONS ANALYSIS – NAMELY, TECHNICAL AND FUNDAMENTAL.
This type of analysis uses a price chart of an underlying security and historical data. Doing this type of analysis, you look at the price history and inception of trends on a chart.
Based on long-term observations, analysts revealed common behavior or patterns that enhanced the importance of technical analysis and enabled it to impact the price of an underlying asset. Technical analysis has the strongest impact on high-yield assets like currencies.
Also, technical analysis is a basis of indicators, that is, the instruments used to analyze binary options under different conditions.
This type of analysis is based on the fundamental news and events, global demand and supply.
Generally, this is a long-term analysis because really important news reports can influence prices during long periods, longer than a couple of hours or days.
For instance, flood in Japan will have an impact on an underlying security longer that just two or three days because of which Toyota, Sony, Samsung plants can suffer losses. In that case, the stock ofthese companies will plummet and stay at that level for a long time. The situation like that arose after Fukushima nuclear disaster when not only some companies but Nikkei225 came crash down.
Similar situation may arise in case of conflicts. For example, the prospect of the U.S. invasion to Syria in August-September last year impacted on the crude oil price significantly.
Performing fundamental analysis, you can figure out and “see” the basic trend of a chosen currency, understand the general direction the market will take.
Let us consider the following case. You perform fundamental analysis of Samsung stock. The result shows that the company grows fast, therefore its revenue and stock rise as well. Samsung has a clear-cut strategy and successfully ousts its competitor, Apple, from the market. Besides, Samsung manufactures mobile device screens for Apple and keeps developing new products surprising market and customers.
Hence, as you understand, Samsung stock will keep rising in a long term. Though technical analysis can show temporary fall of Samsung stock (for instance, volume of sale decreases because the market waits for new gadgets), nevertheless, the general trend is bullish.
What you need to do next is to choose a period for which you buy a binary option as this is the most important part of analysis.
If a news report has an impact on an underlying security just one day, then you need to invest just for a day or, even better, for several hours. For instance, start of sales is always accompanied by the stock rise, and it’s important to buy a binary option on the stock on time. You can get a return on the same news report several times because sale doesn’t start on the same day around the globe.
For example, sale of Samsung Galaxy Alpha 3 starts in the United States on the 14th, in the EU – on the 19th, etc. Following the calendar of selling, you can get a return on the same news report several times.
If events are global, then you should invest for a long period. For instance, FOMC makes a decision to fold quantitative easing. Consequently, the U.S. dollar will keep strengthening till, at least, next Fed meeting. In that case, you can invest in the corresponding binary option for several days or even weeks.
The Third Option is Your Own Analysis
An ideal solution, in my opinion, is to use a combination of several types of analysis. In that case, you reduce your risks because you get data from different sources. Besides, I advise you to look at the reputable analysts’ opinions like Nouriel Roubini, Mark Faber, Stanley Druckenmiller, or Bill Gross comparing their and your forecasts. Also, you can read financial experts’ projections and check an economic calendar. Along with analysis of binary options, you can use strategies like Tag along, financial strategies etc.
Combining the above said methods, you can significantly increase your profits from binary options trading.
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