Using Fundamental and Technical Analysis to Trade Binary Options
It is crucial that you have a favorable win ratio when you trade binary options – it is the only way to ensure that you come out ahead and have some profits to show for the efforts you made and the risks you took.
The best way to ensure this is to enter your trades when the weight of evidence points in one direction, and to buy a binary option in that direction.
So, how do you weigh the evidence?
Rely on a combination of the fundamental and technical evidence available to make your decision.
The fundamental factors that affect a currency relate to its country’s economic status. Therefore, factors such as the country’s economic growth, level of employment, interest rate environment, rate of inflation, manufacturing output, external trade (exports and imports) and retail spending all provide valuable insight into the inner workings of the eonomy. This has an ultimate bearing on the worth of the country’s currency, and therefore its value opposite other global currencies. That reflects in the forex market and has implications for all the players in that market – central banks, corporate businesses, retail players such as travellers and small businesses, and speculators. Also binary option traders like you and me! News relating to any of the above factors causes its currency to move up or down in value, as perception changes regarding the impact of of that news on the economy and currency.
So how do you keep tabs on a country’s economic news flow?
We do not have to go into the depths of economic fundamentals and their analysis but what is required is an eye on important economic releases. You can get this for free by looking up the ‘Economic Calendar’ that is published on the internet by many forex portals. For your convenience, these calendars can be customized by you for your home time zone as well as degree of importance of the news.
Of course, you do need to get an education on the more detailed aspects of forex trading but it is readily available in books, publications and of course the internet. Be assured that it shall be worth your time.
Also, during a demo trading period, do make some trades before and after the major news releases to get a feel and understanding of the market – this would stand you in good stead in future.
A word of advice, though. In the initial period of your trading, avoid real (active, not demo) trading the big news releases (example Non-farm Payrolls, Interest rate decisions) for a couple of hours before, and after the scheduled time of release. This is because the substantial volatility in the market could inflict losses on your account and make a mess of your win ratio.
Here’s a thought: If you deposited $500 in the binary broker’s account and you intend to risk 2% of that on each trade you would bet $10 on every binary bet. That gives you 50 trades to prove yourself. Calculate the asking win ratio for that currency to break even. Assume you find it is 60%, then you must win 60% of these 50 trades, i.e. 30 trades to just stay even.
Therefore husband your trading capital carefully, and after assessing the fundamental position take a look at the technical picture too for arriving at the weight of evidence conclusion. You can’t be too careful.
Technical analysis is a study of the previous price and volume behaviour of a currency (or other actively traded asset) and assumes that these previous patterns offer valuable clues to the future behaviour of the asset. Technical analysis assumes that all fundamental changes in a currency are getting built into the market price at all times and that the price reflects all known facts.
By studying the past trends, current momentum, and indicators, technical analysts seek to construct a reasonable picture of where the currency can move.
As in the case of fundamentals, technical analysis too requires to be studied and understood. You can choose to do this yourself, or else refer, at least initially, to free technical analysis advice provided by many forex portals including the forex technical analysis at ForexAbode.:
Once you have both sides of the coin do take a decision accordingly. This will likely take practice but you will gradually improve your deductive capacities with time. If you can, try keeping a trading journal of these observations and how they played out.