Technical analysis is the fundamental pillar of short-term trading, and therefore it should be your top priority when trading binary options. To do a good job of technical analysis in binary options, you must take into account several important points, such as timing, long and short-term patterns, long-wick candles, short-wick candles, and what this implies for the following market movements. This will allow you to know 3 important indicators that will help you predict which is the most likely movement of the market: the price, the market volume, and the open interest.
Trading binary options are more difficult than you might think, it is not just randomly opening and closing trades, it is about thinking and acting accordingly. Thanks to trading robots like MT2Trading, much of this work can be relegated to software that will allow you to get on with your life while trading for you; automating your trading process, maximizing your profits.
Still, we consider it important that you know what the fundamentals of technical analysis are and how to perform it to create a binary options strategy that is more likely to be successful.
Performing technical analysis on binary options: How to read the charts?
The line graph is the easiest to analyze and in it, we can find at least 3 important parts.
Axes
Oriented in the Cartesian plane: on the X-axis are the temporality data and on the Y-axis the prices. In general, the chart is set to measure between the historical minimum and maximum prices.
Data mark (line)
This line is automatically drawn following the relationship between time and the historical price, marking the exact point where an asset is located in real-time.
The current price
The latter is one of the most outstanding values of the line charts since they show exactly the current position of the market, marked in red if it has recently fallen or in green if it has risen.
This is the configuration that line charts have in almost all brokers. The information they offer mainly indicates to us which have been the points at which the market has reversed its trend on different time scales, which can range from one hour to several months, and even years, in case we want to monitor an asset for a much longer time.
In the case of candlestick charts, the situation is a bit more complicated. These also record the ups and downs of the market but in a much more precise way. The candles are thick lines continued by thinner lines. The thick lines are the bodies of the candles and the thin lines, the wicks. The bodies tell us, to put it more simply, strong movements. Indicating a blue candle if it has risen and a red one if it has fallen.
The wicks indicate the landslides and are very useful to measure trends, although for this much more complex calculations are needed, really, to begin with, these data are what interest us.
How to determine a trend in a technical analysis in binary options?
For short-term trading, the trend is what will mark most of the binary options trades that we will open. The first thing to see is the current price, its color will indicate what the last movement has been, and it is the first clue that will indicate where it is moving.
The next thing to look at is the market volume, which is just below the price and tells us how many contracts have been signed-in a given period of time. This number can tell us how strong the fall or rise is that is being experienced at that moment. If most investors are selling in a hurry, it will indicate high volume with red numbers. If, on the other hand, they are buying, it will indicate it in green numbers. When there are few contracts in one direction and in the other, it indicates that the movement will be short, whereas, in general, if the volume is high, it will probably take longer to reverse the movement.
Open interest is the last indicator and is one of the most widely used in binary options technical analysis. It is a value that indicates the number of open operations after the period has closed. It is indicated by a number between the current asset price and volume.
All this data, of course, is extrapolated to the linear graph, the first represented by a line that will rise or fall depending on where the price is located in a certain period of time. The second, as bars at the base of the graph, colored red and green, and the third, as a straight, dashed line that will be found between them.
Drawing trend lines will help you determine a direction
Trend lines in technical analysis in binary options are as useful as they could be in any other market. What you should do is join the support or resistance points with a straight line, obliquely. The direction of the line, as it is obvious to imagine, will always be from left to right, and it will indicate whether the trend is bearish or bullish, in case it is not so obvious to the naked eye.
Conclusion
The fundamental thing in market analysis in binary options is to determine what the trend is, and what is the probability that a short-term movement is bullish or bearish. To know it, you must take into account all the factors that we mentioned in the article and understand that it is not a safe bet; but rather, improve the probability that your next prediction will be as accurate as possible and that you will be able to take advantage of it.
In any case, automatic trading with MT2Trading allows you to extract signals much faster and from different sources, which will allow you to trade without fear of missing any detail and without bias, in addition to covering a number of instruments that would otherwise be impossible for any human being.