Trading the binary options, you need to do an analysis of the price movements.
Some inexperienced investors are sure that if the price goes up, soon it falls back. But it’s not always like that. That is why, the successful traders adhere to the specific rules facilitating profit.
One of the main conditions of the successful investments is an accurate forecast of the price movements. Therefore, before you invest, you need to carry out a thorough analysis. One of the most wide-spread ways is a technical analysis of the binary option trading which we consider below.
Technical analysis of the binary option trading
The technical analysis of the binary option trading is also referred to as the chart analysis which means that the price charts and the history of their movements are used to predict the future price movements.
The binary options technical analysis is a basic and very important stage of the analysis as it enables to identify the trend type which can be either ascending or descending. To figure out the tendency type and its duration, the financial experts use a great number of tools such as the basic patterns of the technical analysis or indicators.
The technical analysis is the most in demand on the foreign exchange market as the currencies is the most liquid binary option underlying security.
Let us start learning the basic definitions of the technical analysis and the methods used.
Trends or tendencies can be divided into three types: bullish (an ascending trend), bearish (a descending trend), and а sideways or flat trend.
In case of a bullish trend, the price of the underlying rises, so you need to buy CALL options. In case of a bearish trend, the price of the underlying security drops, hence you need to invest in PUT options. If there is a flat trend in the price chart, you should hold back from investments unless you know further price direction (for instance, you have insider information etc.)
However, the price is rather unstable indicator, and a tendency can quickly turn to another.
This is shown as waves in the charts.
The other basic term of the technical analysis is volatility which means the price variability or the amount by which the price changes. The stronger the volatility is, the more unstable the price movements are. The lesser volatility of the underlying is, the more stable the price is.
A great number of rules, criteria and laws have been added to the technical analysis for the past years.
The pattern in the technical analysis is a graphic representation of the price movement based a peculiar principle. Hence, if you see what pattern is forming, you can predict further price movement accurately.
The basic patterns of the technical analysis are as follows:
- The Triple Tops
- The Doji
- The Pin Bar
- The Triangle
- The 3 Little Indians
- The Head and Shoulders
To foresee future price direction, the experts have developed special indicators.
An indicator is a graphic model signaling when the price changes its direction.
The indicators are visualized in on-line charts, so you can just click Indicators and select the indicator you need in the drop-down menu.
You can see how it works in the real price chart on this website.
Any indicator is based on the trend and other algorithms enabling you to anticipate the short-time price trend accurately.
The most frequently used indicators in the technical analysis are as follows:
- Moving Averages;
- William’s Volumes;
- Moving Average Convergence/Divergence;
- Bollinger Bands
The above mentioned patters and indicators have become the basis of a great number of the binary option investment strategies including a tunneling binary option strategy.
Performing the binary option trading technical analysis by means of the price charts, you can sort out what is the current price trend. Also, you can anticipate its duration whether it’s a short-, medium- orlong-term trend. Using the main parameters of the chart such as the trend direction, its periodicity and volatility, you can figure out when you should sell or buy binary options.
To make money trading the binary options, use the strategies based on the technical analysis. You can combine several strategies and signals to enhance the reliability of your forecast.
The rules of the market used in the past are still relevant today, and they will be the same in the future. Therefore, if you use the technical analysis, you can predict the future market trends precisely.