Technical Analysis

In this introductory article, we will be covering technical analysis as it is used in binary options trading. 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:

  1. Fundamental analysis
  2. Technical analysis
  3. Correlational analysis
  4. Trader choice and market sentiment

Perhaps the most popular form of trading analysis used by investors from all investment industries would be technical analysis. Technical analysis is the most effective and practiced form of trading analysis out of fundamental analysis and correlation analysis making it the investment method of choice among binary option investors. For those of you who are unfamiliar with the basics of technical analysis it is a form of trading analysis that requires the implementation of a charting solution and oftentimes the application of technical trading indicators.

Technical analysis: Main concept

Three imperative assumptions to remember when it comes to technical analysis would that history tends to repeat itself, the price action of an asset moves in one of three price trends and the market discounts all investable assets. These three assumptions are true no matter what economic factors may take place and we will further explain the reasoning behind that. Many of us are familiar with the statement that history tends to repeat itself so that shouldn’t be new to anyone but what is most commonly misunderstood would be how the markets discount all investable assets. You see, what many novice investors fail to realize or understand would be that the price of an asset is caused by the derivative of price action which happens to be the direct derivative of order flow. Now, we know that may have been confusing there for you so we will further explain. You see, the price of any investable asset that you may see during any moment of time comes from order flow which is the summation of all buy and sell orders during any duration of time. The reflected price and price trends that you can visually see is known as price action so when you are seeing the value of any particular asset you are seeing it’s discounted rate due to order flow.

Trends

As we briefly mentioned above, there are three different types of prices trends that can be seen when applying technical analysis. The first would be known as a bullish trend, which is an upward trend where the value of an investable asset is rising. Bullish trends are a great sign to investors because it indicates that the economy is growing and becoming stronger. The second type of possible price trend would be a bearish trend where the price action of an asset is heading in a downward direction meaning that the value of that asset is decreasing. Bearish trends indicate to us that the economy is weakening and that the bears, otherwise known as the sellers, are in control of the markets. The last type of price trend that can occur would be a neutral trend where price is heading neither higher or lower, this indicates to investors that neither the bulls or bears are in control of the markets. Neutral trends are unfavorable trends when it comes to investing so if you ever come across a neutral trend do your best to avoid investing at all costs until a bullish or bearish trend is established.

Implementation of technical trading indicators

The implementation of technical trading indicators are mainly used with the sole purpose of helping investors make more accurate predictions regarding the future direction of an investable asset.  Technical trading indicators’ main functions are to form buy and sell signals through a series of divergences and crossovers which oftentimes helps investors accurately predict the future direction of an asset or inform an investor on the current condition on an asset so they can make a more accurate prediction. If you are interested in conducting technical analysis, you might be interested in taking a look at some of my most recommended binary options trading strategies.

I also recommend checking out Tim Lanoue’s Investment Approaches article.

Conclusion

Technical analysis is the most popular form of trading analysis used not only by binary option investors but also investors from all other investment industries. The implementation of a charting solution, such as MetaTrader4, MetaTrader5, thinkorswim or Free Stock Charts, is essential for investors who wish to apply technical analysis.

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Introduction to Technical Analysis
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