Analyzing the Forex Market
There are three main types of analysis when it comes to figuring out the financial markets: technical, fundamental, and sentimental. These are actually pretty easy to figure out with a little bit of experience. Technical analysis relies upon graphs and charts, fundamental analysis relies upon the overall health of an asset, and sentimental analysis is basically “trading the news.” Each of these methods of looking at an asset has its merits and no one of them is complete on its own. Still, with some types of trading, you will want to rely more heavily on one type of analysis than another. Within the binary options world, you will want to be familiar with all three types, but you need to know when one method is superior to another.
Short term trades do not rely upon the numbers that constitutes an asset’s health. For example, if you are trading 60 second binary options, technical analysis is going to be your best choice. When it comes to short term movements, all assets take on a similar quality, and this is most easily measured with a price chart. For example, take the theory of support and resistance lines. These state that when an asset has a problem going over a certain price at the historical level, when it approaches that price level yet again, the price will drop rather than rising above the historic resistance line. Of course there are always exceptions to this rule, but it usually takes an external event in order for a price to break through a support or resistance line. For short term predictions, technical analysis is quite effective at anticipating these movements.
Sentimental analysis is something you will want to work with on a limited basis when using technical analysis. Remember how we only broke through the support or resistance line when an external event was taking place? Sentimental analysis is extremely effective at identifying these external events. If, for example, a major announcement were to come from Apple, such as with the recent iPhone 5 announcement, this can have a major impact upon the stock prices of this company. If the price was near the resistance point and this announcement was released, this piece of news might be enough to push the price up beyond that level.
Fundamental analysis is going to be your best bet when it comes to long term trading. Fundamental analysis looks at the things that cannot be measured upon a price chart. Let’s look at Apple once again as our example. One way to measure the health of a company comes as a prediction of where the stock’s price will be in one year’s time. With Apple, the current price per share is around $680. Some experts believe that in a year, Apple’s stock will be worth a lot more: $773 per share. Obviously, if these experts are correct, Apple’s price will be going up long term.
Trading the news is important and has quite a bit of overlap with fundamental analysis. Whereas sentimental traders would look at the iPhone 5 release as a catalyst for trading, a fundamental analyst would look at the supposed impact that a new iPhone will have upon Apple as a company. The line is very thin between these two, and you can easily incorporate both methods into your long term trading.
Trading with sentimental analysis alone can be effective, but you need to be patient when you utilize this method. News does not happen every day for every asset. If you specialize in currencies, for example, you might only be making a couple trades per week. For a binary options trader, this is not going to generate a big profit and as a result, most traders do not rely solely upon trading the news, but rather use it in addition to their other types of analysis.
Long term binary options are not as popular as the short term options offered by brokers. This happens for a few reasons, the biggest two being that 1.) short term options see more immediate profits, and 2.) long term options tie up your money for longer. Still, a well rounded approach to binary options will incorporate both of these types of trading. This means that to be successful you should diversify your portfolio.
Every trader will have a slightly different way of analyzing their assets of choice, and this is okay. There is no one way to beat the binary options market. If you are unsure of what type of analysis is going to be best for your style of trading,open a 24option demo account and test out a few theories. Demo trading is one of the best ways to get a feel for the markets and determine what methods will work for you and which will not.
As stated above, there is no one way to trade that is better than another. Many people thrive on short term trades, but just as many need to trade longer term in order to be successful. A well rounded approach will utilize both time frames and will also use all three types of analysis. This is perhaps the safest way to approach binary options as you will see more reliable long term gains.
Trading binary options only over the short term or only over the long term is simply not the most efficient way of creating a profit in this business. You’ve probably heard the popular phrase about how you shouldn’t keep all of your eggs in one basket. This is a fancy way of saying you shouldn’t rely solely on one method for success. Trading is a high risk activity anyway you look at it and you will want to reduce that risk for long term success. A little bit of short term trading plus a little bit of long term trading will be your best choice for sustained results. Trading binary options is not easy, but you can make it a little bit easier by trading different time frames and learning the methods of analysis that are necessary for those time frames.