As a binary options trader or a newbie just stepping in this trade market, you must already be aware of the significance that a thorough market analysis holds. Market analysis, when done to perfection, would not only enable you to understand the market movements and trends but you would have a much higher chance of earning more profit. In this guide we are going to discuss all about different types of market analysis so you can incorporate one best suited to your needs and situation. There are three basic categories of market analysis; fundamental, technical and sentiment analysis. So, without further ado, lets dive right into the specifics of each type.
1. The Fundamental Analysis
As the name goes, it is one of the most basic types of market analysis and one of the ways to conduct a fundamental analysis would be to utilize news-trading strategy. Before we discuss ‘what this binary strategy is all about?’; you need to keep in mind when is the perfect time to implement this trading strategy.
Well, the best application opportunity for this strategy are the events that generate a lot of volatility. It is this increased volatility that gives rise to rapid movements in the market and elevates the price or absolutely depresses it. In binary options trade this would become a very effective strategy if you are trading simple ups or downs. At the end of the day, all you must do is to have a good idea of future reactivity of the price (whether it would be better or worse than the overall expected data) and strength of the reaction. In this scenario, the only things that would make or break the deal would be your confidence on the price movement that it is going to touch the option that you have purchased.
Let’s consider an example here…If you see a bullish bias in the results of a retail sales report that you are planning on trading; there is a good chance that the result could be better that what was expected and you would consider going for a “call” option.
Now, this is not to say that there aren’t any risk factors involved. While fiddling with this strategy, you must exercise caution or rely on the best binary options software. The first factor that you must consider and manage careful is the “volatility”. While playing any news report and purchasing some binary options you should be very confident that such an event would generate a much volatile response and the price movement may overlap the strike price (staying above or below that particular level). On the other hand, if you are trying to trade a news report that wouldn’t be able to generate any upheaval; you must be letting your money slip away.
Another important factor is the component of ‘time’ in binary options. It is a common understanding that the price must be near the strike price at around the expiration date, even for the basic up or down options. So, you may also give the one-touch options a try because in that scenario the price movement should only touch and not be specifically close at a certain level. You may also go for the ‘out of range’ options, if you are expecting the price movement to have a strong momentum leading it away from the previous range. Because with this strategy you wouldn’t need to select a direction; all you can do is decide about the market movement strength and direction.
2. The Technical Analysis.
If you have always been fascinated with Bollinger bands, stochastic and moving averages; then technical analysis is the right thing for you as a binary options trader. You must remember the fundamental purpose of such indicators; they help you understand the future movement of price in the market. This is a very widely used analytical technique, however, you must get yourself well-acquainted with the individual indicators before attempting to use this strategic analysis for your trade decisions.
3. The Sentiment Analysis.
It involves measuring the prevalent “feeling” in binary options market with reference to risk flows. So, the questions that might surface in such an analysis may address the confidence that traders may be feeling while purchasing risky assets or assessing if the traders might prefer adopting a risk reduction strategy by purchasing safe asset options or turning to cash! Sentiment analysis is very useful when a trader is struggling to hop on a trend and would help in assessing the feeling that prevails in the market.
Some don’t like to go by feeling or emotion, and these people rely on automated binary options robots.
Go for a Combination Analysis.
When it comes to binary options trading, every bit of insight counts towards making a good profit and a combination strategy can pay off in the long run. So, basically you are making use of all the different categories of analyses and making important decisions based on the results.
Moreover, all these different types of analytical techniques compliment and overlap one another. On one hand, the fundamental analyses enable you to perceive the possible direction that you may pursue, while the technical analysis helps to find out chances in the market breaking, reaching or finding resistance or support for a certain price. In addition to this, the sentiment analysis would give you useful insights about the overall mood of the market (i.e. whether it is risky or not).
So, the primary goal is for you, as a trader, would be to improvise and keep modifying your strategy as per your requirements (and learning from your mistakes).
Share with us in the comments below; which of the analysis have you incorporated in your business decisions?