In this introductory article, we will be covering fundamental analysis as it is used in binary options trading. This is perhaps the most important thing you will need to learn in order to become a successful trader because most of the fully-automated robots and signal services require at least a basic understanding of fundamentals before you can start generating consistent profits. For those of you who are relatively new to the investing industry, it should be known that there are several different styles of trading analysis that can be applied when investing online with binary options:
Perhaps the most traditional and widely used form of trading analysis would be fundamental analysis, which is the least technical form of trading analysis out of the three but requires the most common sense out of the bunch. To better explain, fundamental analysis is the analysis of an asset’s financial health, competition and press release. Perhaps the best advantage concerning fundamental analysis would be that it requires no use of a charting solution, technical trading indicators or any trading software.
How to do fundamental analysis?
An interesting realization regarding fundamental analysis would be that everyday most people around the world are unknowingly involved in it by simply watching the news. Any press release that can affect the value of an asset is examined. Another common form of fundamental analysis that is oftentimes utilized by binary option investors would be assessing an online financial portal such as Google Finance. Google Finance is perhaps the largest and most widely used online financial portal and there is a great reason for that. Google Finance not only provides investors the best outlet for fundamental analysis gurus, but they provide unparalleled data compared to other financial portals. While accessing Google Finance investors can see relevant and future news regarding any particular asset, live feed of an asset’s financial health and the ability to see past performance levels of nearly any investable asset.
One theory that is imperative to remember when it comes to fundamental analysis is price evolution. Price evolution can be better explained as any factor that can directly or indirectly affect the price of any particular investment asset. By applying this type of analysis, we as investors can better predict the price evolution of a particular asset, which will ultimately increase our chances of winning a binary options investment. Perhaps the best method for applying fundamental analysis would be to only focus on a handful of assets such as a couple currency pairs, a couple stocks and a commodity or two. That way you don’t become too overwhelmed.
Now as you can see in the image provided below the formation of price evolution, more commonly known as price action, can result in the formation of three different market trends. Most other websites will claim that there are two type of market trends that can occur but that would be incorrect and ill-informed. As you can see in the image provided below we have the three different trends that can occur which would be bullish, bearish and neutral. A bearish trend is a trend that is heading in a downward direction indicating to us that the sellers are in current control of the market. The value of the asset is decreasing in value always when a bearish trend is present.
A bullish trend on the other hand is a trend that is increasing in value and heading in an upward direction indicating to investors that the buyers are in control of the market. The last trend that can occur would be a neutral trend where neither the buyers nor sellers are in current control of the market. Neutral trends are oftentimes referred to as trending markets and they head in an indecisive, side-way direction.
Our economic calendar, which is shown in GMT, is the best way to implement fundamental analysis in your investment arsenal. As you can see between the potentially affected currency and the Press Release title would be the predicted volatility affect of that press releases. If you see 1 bull figure that tells investors that low volatility is expected where 2 bull highlighted indicator moderate volatility and 3 highlighted bulls indicator high volatility. It is recommended to avoid investing with semi-automated systems when 2 or 3 bulls are highlighted due to the increase and erratic market behavior that can occur from those press releases.
Fundamental analysis: An example
A common example that we use when trying to better explain fundamental analysis is that you are a binary options investor who has been a long-time Apple iPhone supporter. You currently have the iPhone 6S and you know that tomorrow the iPhone 7 will be announced and released to the public which will more than likely cause a sharp increase in the value of the Apple stock. By applying fundamental analysis, you can predict that the price of the Apple stock will rise after the announcement of the iPhone 7. You could then place numerous call investments just prior to the announcement so that your investments expire in-the-money giving you an extremely nice return.
Fundamental analysis is one of the most effective and traditional forms of trading analysis used by binary option investors around the world yet it is oftentimes the most overlooked trading method. This can greatly be credited to binary options investors stubbornness in finding the “Holy Grail” of trading strategies which unfortunately does not exist. Every trader should be well-versed with the fundamentals of the assets he is focusing on. Even if you are using a semi-automated robot, you should not trust the machine blindly. Conduct your research and invest wisely.
Listen to Michael Freeman explaining fundamental analysis: