Technical analysis of binary options
The function of technical analysis
In binary options trading it is not enough to know only how to close a deal. It is important to have a positive result in maximum entries into the market. To have it you must know the main rules of technical analysis. The analysis of binary options doesn’t differ from a technical one in any trading in the market. We have the same buyers and sellers and the price, which is formed by them. The price is our main object of analysis and it doesn’t depend on the instrument we trade with.
To make successful deals, it is necessary to identify exactly the points of entries and exits of the market. Entries points are more important in option trading. For such kinds of tasks the technical analysis was worked out and checked by the time.
The analysis can be divided into two main directions: graphical analysis and indicators’ analysis.
Graphical analysis of binary options
Graphical analysis is the using of graphical figures on the diagram of asset’s price. With the help of them you can identify the direction of price. The figures are divided into reversal ones and those, which continue trend. To the figures, continuing trend, the following is referred:
- symmetrical triangle;
- rising/descending triangle;
Rising triangle тis referred to bull’s market. It has horizontal line of resistance and rising line of support. After the resistance line knock, the price goes on its movement to the up. Descending triangle is formed in bear’s trend and is a horizontal mirror reflection of rising one.
Rectangle or lateral motion reflects the absence of price tendencies. The price moves between the boundaries of horizontal and parallel to each other lines. It is one of the kinds of consolidation and it is better not buy binary options contracts until trend renewal.
Flag and pennant differ from each other by the form. The both of them appears in the situation of temporary decline from the main motion. The flag has a parallel canal, but the pennant has narrowing triangle canal.
In the technical analysis of binary options it is important to know when the motion course can change to the opposite one. The following figures on the price graphic will help us in it:
- the head and shoulders;
- double/triple top;
- double/triple bottom;
- roundish top/bottom;
- rhombus (diamond).
Head and shoulders – is a pattern, which is based on three tops. During the rising motion one top appears, then the next is formed above the previous one. The third top happens on more lower level. All these three tops are based on the one line of support. The figure can be considered as the completed one, when the level of the price knocks down the support. On bear’s trend the pattern will be mirror inverted, but the principle stays the same.
Double top in the analysis of binary options means the trend stop. The graphic sets against the price level, gets away and returns again to the level. If you can’t knock with the second time, in this case two tops are formed in one level. The longer they are formed the bigger is their number the more evident is the turn. Double bottom is the opposite situation.
Roundish top or the bottom is called “plate”. It is seen when after the fast movement the trading becomes slower, the volume and volatility fall. On the graphic it is shown as a soft junction to break.
Diamond is characterized by the increase of price motion, after the slowing down, with the next fading in the form of triangle. We have rhombus figure, which consists of two triangles.
Indicators analysis of binary options
As for indicators, we can divide them also into two groups: trend and oscillators.
There are many different modifications of indicators, although all of them were created on the basis of several simple ones.
Trend indicators help orient in actual trend in the market. In technical analysis of binary options big significance have trend indicators, because they show CALL or PUT we should make. Let’s take some basic and more popular of them:
- Moving Average (МА) or sliding average;
- Alligator - three curves, based on МА with different period;
- Bollinger Bands (Bollinger lines).
- Stochastic Oscillator;
- Relative Strength Index - RSI for short;
- Moving Average Convergence/Divergence (MACD).
What kind of analysis should you choose?
Technical analysis of binary options doesn’t consider trading only according to graphic or indicators methods. Both of them must unite and exchange each other in dependence on the situation in the market. There are no universal methods for analysis. Every trader must identify optimal parameters of indicators and their combinations. With the help of technical methods an investor creates his own trading system and follows it.