Believe it or not most of binary-options trading is based on technical analysis. Technical analysis is the study & measure of historial price-action of a financial product in order to make a prediction about it’s future performance. All the articles & all the strategies about trading binary-options touch on technical analysis if not talk about it in it is entirety. Yes, yes, fundamentals are important & have a huge impact on my trading but it’s the technicals that are used for pinpointing entries & determining expiry. The timeframes used by the average binary investor are just to short for fundamentals to drive the trades. Increasing expectations for corporate profits may move the industry over the course of weeks & months but it’s the day to day shifting of the industries that i as binary options investors are capitalizing on.
The thing that We love about technical analysis is that you can use it by itself to trade without thought to the fundamentals. The basic premise of TA is that all things are known by the industry & that knowledge is represented in the charts. If something isn’t known to the industry it soon will be & that knowledge will then be discounted by the industry. This means that all the information available to any investor is represented by price action & if you’re good at reading price action you do not have to worry about the fundamentals. If of course you believe in TA the method I do. It is hard not to when the results of my analysis proves correct time & time again. So, how do you do TA? It is actually very simple but can also be quite complex so for this article I’ll be sticking with some of the basic tools & techniques. Check Out: Millionaire blueprint
3 Basic Tools All Investor Should Know
Support & Resistance – Support & Resistance are terms that describe areas where prices quit falling or quit rising for a duration of time. Support because as prices fall they become supported by the industry ; Resistance because as prices rise the industry begins to resist those higher prices. 1 method to think of it’s that these are places where the industry wants to buy(support) or sell(resistance). These areas are usually denoted by areas of price congestion on a chart or are price levels the industry has been unable to move beyond in the past. For the technical analyst these areas are important because once they give support or resistance once they’ll likely do so again. In order to use these in your analysis simply draw horizontal lines at anywhere on your chart that looks like a likely place. This could be at the most recent peak of chart or trough, connecting peaks or troughs of equal height, the top or bottom of chart in prices or a congestion band as mentioned before. Look at the chart below, I’ve marked several areas where possible support & resistance may be found. You can see that both the resistance & support lines given entry points for trading.
Trend Lines – Trend lines are very similar to support & resistance lines but they’re not horizontal. Trend lines are diagonal lines connecting series of higher & lower peaks of chart. These lines are intended to measure the direction of the industry over time & denotes a gradually increasing(or decreasing) price level at which the market wants to buy. An identifiable trend means that it’s more likely for prices to move in the direction of the trend than against it. 1 of the oldest sayings among investor is “the trend is your friend, trade with your friend”. Anywhere that prices move away from the trend line & then back to it’s a potential entry for binary options investors. Look at the chart below; after the down trend was set by the first lower peak of chart a continued down trend ensued. Any trend following signal can be taken until the trend is broken away. In this case a 30 bar EMA was used to produce ten or more signals in the span of each week.
Oscillators – Oscillators are a very broad category of technical analysis software but one in which they all share some basic characteristics. For one, all oscillators fluctuate across a central line &/or between 2 extremes. For another, all oscillators can be used to identify 3 different signals; trend following signals, potential reversals & to confirm buy/sell. Some basic oscillators include RSI, Stochastic, momentum indicator and the investors Index. Each is based on a different mathematical equation but all are displayed the same method; a wavy line that moves over & under a central signal line or between 2 extremes which are in turn used as signal lines. What I’ve noticed over the yrs is that most oscillators will also produce similar looking signals, some are simplier to read, some come sooner than others. The basic signal an oscillator gives is the crossover. Whenever the oscillator line crosses over it’s signal line it’s giving off a signal. These signals can be either trend following or not so caution is needed when trading solely from an oscillator. Look at the example below. I’ve a stack of oscillators including MACD, TRIX & Stochastic. Notice how similar the wave patterns are, stochastic seems to be leading the other 2 which may or may not be good. If it’s producing winning signals then yes, if it’s producing a lot of fails signals then no. The important thing with oscillators is to pick 1 that you can read comfortably & use to get good signals.