If there’s one thing exciting about binary options trade market, it is the possibility of extracting high profit margin. However, a lot of traders suffer by not paying enough attention towards the market trends and fail to get hold of strategic decision making. If you have been among the ones who always felt hesitant to conduct a thorough market analysis, we have comprised this step by step guide for you. So, now you can easily perform the market analysis and locate promising trading opportunities.
How to Begin with Market Analysis?
In order to perform market analysis for binary options trade, you must have a comprehensive insight about the whole situation and various market trends. So, ideally you would start analysis on a longer period and then gradually work downward towards shorter ones. Interestingly, the longer periods would not be the one that would be directly involved in your trade. However, in order to overcome the impact of short periods, you would require an in-depth familiarity with the longer ones.
Let’s say the binary options market is somewhere around 200 day, moving average (referring to daily charts), this number would prove to be substantially insightful in the market decision making further along. So, even when you observe a downtrend on a 5-minute chart, it would be comparatively weak trend than the one on longer time duration; and would conveniently override its effect.
In the binary market, the traders that might be looking to invest in a downward option for shorter trends may be falling in the trap of a badly done prediction and would most likely be losing their profit. In order to stay clear of such pitfalls, it is imperative that you start analyzing the market trends with a focus on the longer time frames.
Below are some simple steps that you can take to conduct a market analysis for guiding your trade decisions.
Also, please check out some of our other educational articles we’ve recently written here:
- The Go-to Guide for Binary Options Trade Strategies
- Understanding Time Frames and Trends in Binary Trading
- The Secrets to be a Successful Binary Options Trader
1. Mapping the Daily Chart
It would be wise to stick to pattern matching in the initial phases of analysis and later pay attention to the more technical aspects. A good daily chart may make use of a moving average of around 50-days, 100 days, 200 days and may include Bollinger bands. You may also make use of other relevant indicators; the focal point is primarily the overall approach that is directed from bigger to smaller time frames and relationship of all these different periods of time. When you plot a daily chart, it is important to pay attention towards the movement of long-term trend (whether it’s an uptrend or a downward one). Also pay attention to the sideway movements of the long-term trends. When you analyze the daily charts, you would get an overview of the whole market situation and be able to make better trade decisions.
2. Getting Familiar with the 1-hour Chart
The hourly chart isn’t very distinct from the daily chart, however, if you observe that hourly chart resembles the daily chart, then, it becomes a strong indicator of the next turn of events in the market. For instance, if the daily and hourly chart show an upward market trend and the market continues in that direction, it would eventually break through the resistance of daily chart and would lead towards an upward momentum. On the other hand, if you see a turnaround in the market, it would simply be a confirmation of the resistance of daily chart and would add to the continued chart consolidation.
To trade smartly, you must keenly monitor the variations in daily chart. Let’s say, you observe an upward trend; it would be a great opportunity to trade a high option or go for a one touch option for uptrend. On the contrary, if you observe a downward trend, you may go with a fairly low option or a low ladder, or one touch option for downtrend.
What happens if you cannot see clear trend developments? Well, this is certainly a pressing question because without an appropriate trend development (in either direction) you have very limited options. The obvious and safe option is to look for any gaps that may accompany a low trade volume. Such gaps close and offers you an opportunity to predict a clear low/high, one touch or a ladder option.
3. Go for the Shorter-Term Charts
The two short term charts can be a 15-minutes and a 5-minutes chart. In the 15-minute chart you may also include the MFI (Money Flow Index) and gain more insights from the analysis. MFI proves to be immensely useful when it comes to making some predictions about investing in a one touch opportunity. As a rule of thumb, utilize a one-hour expiry (this would be equivalent to four periods).
Another great opportunity that enhances the probability of winning at binary options trade is a five-minute chart. When the market gets too volatile after last few candlesticks, MFI fails to show an oversold or overbought area during last few periods, moving averages alter their directions often and you observe last few candlesticks having longer wicks and shorter bodies; this would mean that the market highly lacks a direction. In such a scenario, it becomes tricky to trade a low or a high option. A much safer strategy would be to go for the boundary option. Because boundary options give you two target prices that are equidistant from the ‘prevailing’ market price (it’s more like a range). When the market touches either one of the target prices, you win the option!
Let’s Sum it All Up…
If you want to perform a good market analysis, start with the daily chart and then move towards shorter time frames. Once you understand the conditions within each period, it would be a good time to consider a most profitable period and make an investment.
In the comments below, tell me all the market analysis tips and experiences that you have had.