Market analysis is difficult. And if done improperly, a binary trader will find themselves on the losing side of a trade. Binary options are an all-or-nothing venture, and there is no real long-term investment a person would be able to grow their money in.
Time-bound, conditional bets on everything from indices to forex, bitcoin, events and stock define the many vehicles an investor may choose to put their money into.
Expiry, option premiums, strike prices and settlement prices are going to need to be considered, too. Market analysis can help a smart trader invest a little more wisely, and technical indicators can be a help, too.
A few of the many analysis fundamentals that every trader should know are:
1. Markets Change Rapidly
Markets can change rapidly, and since binary options aren’t dependent on a long-term strategy, you can’t conduct analysis over a week or a month without considering more recent changes. Trades need to be made based on current analysis, even breaking for the night and going back in the morning to make a trade isn’t advised.
Markets change too quickly.
If a trader does market analysis, they’ll want to make a trade when they make their decision and not wait on a trade.
2. Pivot Points
Pivot points are technical indicators that can be used to determine a market over a period of time. These are defined based on:
- Closing prices
And all of the data is based on the previous day’s figures. The goal is to determine bullish sentiment (above the pivot point) and bearish sentiment (below the pivot point).
3. Bollinger Bands
Volatility can be captured through Bollinger bands. These bands will help an investor try and identify the upper and lower levels of a generated band based on price moves. John Bollinger developed these bands that plot two standard deviations away from the moving average (simple).
The standard deviation is a way to measure volatility and the bands adjust themselves based on these conditions.
As a market is volatile, the bands will move further apart from one another. They move closer the more the market moves towards the average.
4. Commodity Channel Index
Also known as CCI, the Commodity Channel Index is a way to calculate the current price of a security relative to its average price during a given timeframe. This sounds complicated, but know that the average price will be, in most cases, the moving average.
Time periods allow the CCI to be a go-to tool for binary option expiry times.
Day traders will use the CCI as a way to ensure that they’re able to make short-term trades while also being able to identify new trends and extremes.
Study and learn how to properly calculate the CCI.
5. Failing to Constantly Monitor the Markets
Winning at binary options requires a trader that is diligent and is able to constantly monitor the current markets. All of the technical analysis and indicators are not going to help a trader find success if they fail to monitor the data available.
It’s important to note that all of the technical analysis is based off of past data, and there is always room for false signals that can lead to making a bad trade.
Backtesting should be proceeded with caution, and risk factors need to be considered, too. High-risk, high-return trades are the heart of binary options.
6. Don’t Trust Market Analysis From Others
Professional traders may provide tips and even offer their own market analysis, which is tempting for a new trader to follow. This information is often valuable and correct, but it can also be completely wrong, or it can be a hyped up trade meant to make the professional money.
Market analysis is a personal thing, and never take the bait off of someone’s own analysis without ensuring that all of the research is correct.
If you’re not willing to do some of the analysis on your own, you’ll quickly lose money and have a hard time finding profitability as a trader.
7. Market Analysis is Difficult
Market analysis can be very complicated and confusing the first few times trying to understand what you need to be analyzing. The top traders will ensure that they know and understand the following technical indicators if they want to have a higher chance of being on the winning side of a trade:
- Wilder’s Directional Movement Indicators
- Commodity channel index
- Pivot point
- Stochastic oscillator
- Bollinger bands
These five technical indicators will make up a majority of your market analysis’ technical indicators. Start slow and try to move on only when you fully understand one indicator. Through patience and practice, you’ll be able to master market analysis.
With over 20 years’ experience in the heart of the investment industry, Ben Myers has become one of the most respected commentators in the financial world. Having worked for global institutions such as HSBC and Bank of Ireland, Ben ran his own successful investment company in the UK before becoming chief analyst at ECMarkets and now YesOption. Ben remains a keen forex and binary options trader and is a regular featured analyst for a number of online news portals including bbc.com, investing.com, and was responsible for YesOption winning the Best Technical Analysis Award 2014 from DailyForex.com.