In their most basic form, binary options can simply be purchased by choosing whether the options in the underlying asset will close higher or lower than the current price. This straightforward, and potentially highly profitable, choice has been one of the major reasons why binary options trading is one of the fastest growing and most popular ways to trade multiple assets, from stocks to currencies and commodities. Whilst it may be tempting to simply guess whether price is likely to be higher or lower after a certain period of time, those traders looking to make consistent profits will generally use one of two analytical techniques in order to decide which direction to purchase the options.
Trading with Fundamental Analysis
Fundamental analysis is a favourite of many traders who have traditionally traded stocks as it looks for underlying value in markets in order to formulate trading decisions. This type of analysis for assessing the value of a company will look at trading reports and earnings, whilst for currencies it will look at the major economic indicators in order to establish the general demand for a national or regional currency. Fundamental analysis is argued to be the most realistic, value-based way to trade binary options although for some traders this may not be entirely suitable. Since fundamental analysis relies on longer-term trends to move price this form of analysis may not always be suited to inter-day and short-term binary options. On the other hand, news and data releases are considered fundamental and can impact markets with very fast and volatile swings in price which make these situations perfect for short, and even 60 second, binary options trading.
Trading with Technical Analysis
Technical analysis is by far the most popular way that binary options traders analyse the markets and look for trading opportunities. The basis of technical analysis is that markets repeat themselves in cycles and the visual chart patterns also repeat subsequently provide a reliable indicator of future price movements. The explanations of why technical analysis works for many binary options traders is precisely because of its popularity; traders see a pattern and collectively act in a way which causes price to move in the expected direction. In this sense it is more of a self-fulfilling prophecy, but nevertheless a very powerful trading tool to generate profits trading binary options. This is also due to the fact that chart patterns and indicators can be applied to any timeframe and therefore can inform binary options trades from 60 second to monthly expiry times.
Which analysis is the best for my binary options trading?
The answer to this question will very much depend on when, what and how you trade. In terms of when, expiry times are the most important variable in binary options trading with some brokers providing options contracts which expire in just sixty seconds. As we already mentioned, this will be suit fundamental news traders and technical traders much better than traders looking for a steady price movement over time in line with interest rate decisions.
In terms of what you are trading, binary options brokers offer a huge range of different underlying assets and the availability of these will largely depend on when you can actively access the markets. Binary options on stocks may favour fundamental analysts due to the underlying value of a company, however, if you are only able to trade during the evenings and weekends, it may be difficult to employ this strategy and trading currencies using technical methods may be the best choice for evening speculators. Luckily, however, binary options brokers do offer touch and range trading options during the weekends. These not only have huge profit levels but offer traders the opportunity to predict the price action of the week ahead which may be very attractive and successful to those who are confident in using fundamental analysis.
In regards to how you trade, this is almost completely personal and will depend largely on your trading personality. Binary options can provide for those who like trade fast and furious trading and also for those wanting a more sedate approach to investing. Either way, the style of trading most suited to you will influence the analytical technique employed with technical analysis being used by a very large number of short-term and intra-day binary options traders.