Fundamental and technical analysis
Binary Options Trading – Fundamental and Technical Analysis
The most successful traders are those who are able to analyze market movements and trends and accurately predict what will happen with asset prices in the coming minutes, hours, days, weeks and even months
A grasp of both fundamental and technical analysis enables traders to increase their profits while keeping their trading risks at a minimum.
Fundamental Analysis is the evaluation of all external factors that can affect trade markets and asset prices. This includes factors such as geopolitics, natural disasters, trade agreements, policy statements by central banks, economic reports and more. Each of these factors, taken independently and together with one another can have a tremendous impact stocks, indices, commodities and currency pairs
Very often, these factors are easy to analyze. A drought in the American Midwest will clearly have a huge influence on crop output, and the foreseen scarcity of wheat and corn will make the commodities far more dear, and in turn far more expensive as well.
Likewise, when oil-producing countries in the Middle East increase their oil output leading to an extreme oil glut, it is fairly clear to even a casual observer that oil prices will likely drop as the supply so heavily outweighs the demand.
On the other hand, other factors are more subtle and require a deeper understanding of the markets in order to analyze their effects. A joint press conference by the prime minister of England and the president of the United States could be the most significant event of the year in terms of the two currencies, but that might only be clear to those who understand the ramifications of what the two leaders announce.
The better online binary options brokers offer several tools that enable traders to develop methods to analyze the factors and their effects on the markets. One such tool is a news and blog section. When traders are able to read about news events connected to a particular asset, whether a global commodity such as gold, or a specific widely-traded company such as a major bank, General Motors or Facebook, it enables them to make short-term decisions regarding trades. More importantly, these articles and blogs provide an excellent teaching tool for traders to analyze future events without the expert help of the writer. Many of these brokers will also have educational videos that walk new traders through the basics of how these events influence global markets, and utilizing these videos can enhance your trading experience.
A second critical tool for fundamental analysis is the Economic Calendar, which should appear on any serious online broker's website. The Economic Calendar provides a comprehensive list of all upcoming economic events that can affect the markets – weekly, monthly and annual governmental – as well as the forecast results of the report and the level of importance the results will have on global markets.
Again, reading the import of these reports does not require an extensive background in finance to grasp, but can be mastered with some amount of experience. The more a trader allows himself the time to learn fundamental analysis (while trading more conservatively), the more profitable his future trades will be.
Technical Analysis does not look at the external factors, but rather at the actual market movements. This method of analysis focuses on the charts, and tracks how as asset has been moving over a particular time period. Using such tools as candlestick charts, Bollinger Bands, RSI, PAR SAR, MACD, technical analysts are able to identify the support and resistance levels of price ranges (the upper and lower limits of the range). This in turn makes it easier to predict when an asset price will rise or fall, and to trade more effectively and profitably.
As with the tools of fundamental analysis, technical analysis can be learned by any trader, but it does take some time. In the meantime, also as with fundamental analysis, there are tools that the leading online brokers provide to help new traders grasp and master the skill of technical analysis. One of the best tools available a signal service, in which the brokers' own analysts watch the charts and alert traders when is the best time to place a Call or a Put option on a particular asset. This allows new traders to profit from trades, while learning at a measured and relaxed pace how to read the charts and movements.
It is important to remember that, even with the best fundamental and technical analysis, and even with the most accurate information at one's fingertips, nothing is foolproof. Markets will at times take unexpected turns, even surprising the most seasoned financial veterans, Nevertheless, proper analytical tools and methods will help make this as the exception rather than the rule, and keep your risks when trading binary options at a minimum, while maximizing your profits.