Technical Analysis may sound like a really complicated term, but it is not. For market traders, it is a term that is instantly understood as it plays a very important role in overall decision-making. With binary options, it is important to be able to make the right price valuation as it is,in most cases, an “all or nothing” investment. Technical analysts help a lot with monitoring market trends and price fluctuations.
Investors should have the knowledge of various technical analysis parameters, to allow them to make the most accurate price evaluations. Traditionally, investors hired brokers for technical matters, although nowadays trading platforms have resources available to help with analysis.
Here are some terms which investors should be familiar with:
A trend is important in trading. When prices of options follow a successive sequence of highs and lows then they are said to follow a trend. An important thing about market trends is that they help investors to anticipate the movements of options. This makes investments less risky and more profitable. However it is not that easy to spot a trend as prices seldom follow a straight line. As well as the direction of a trend, another important parameter is its length.
A trend will be considered major or long-term if it lasts for more than a year. If it lasts between one to three months, it is considered an intermediate trend, while if it lasts less than a month; it is called a near-term trend.
Support And Resistance
Other important parameters that help technicians decide the price of an option in the near time are support and resistance. In the statistics of an option you will find an upper and a lower price limit that it seldom crosses. These levels set the support or resistance levels of an option.
The price that an option seldom moves above is the resistance limit, and the price it seldom moves below, is the support limit. This is helpful for an investor in respect of the assurance they provide. When an option price progresses towards a support or resistance level that is established and tested, then the chances are slight that it will cross these levels, helping an investor to make informed decisions.
How Does One Best Carry Out Technical Analysis?
Here are some steps that can be used to carry out effective analysis:
Quick Result Reviews
Unlike fundamental analysis, technical analysis is focused on short-term financial data, sometimes over a period of less than a month. Technical analysis is most useful for traders looking for short-term investments.
The Use Of Charts
Charts are the best option for analysis as numerical data can sometimes be difficult to interpret. Make use of charts, to plot market trends, using this information along with the support and resistance chart to find out the best time and type of option to invest in. Accurate interpretation of trends and of support and resistance data is vital.
Another parameter that helps traders decide whether a trend will reverse itself or not, is trade volume. Attention should be paid as to whether the trade volume increases or decreases along with the price rise. If the volume increases substantially then the trend is valid; otherwise it may reverse itself.
Use Moving Averages To:
Easily identify highs and lows and help clearly establish the direction of the trend, within the prescribed time period.
Make Proper Use of Indicators
Market indicators or alerts are helpful in deciding whether to buy or sell an option. These calculations provide the additional data necessary for proper technical analysis.
Many investors trade through brokers and some employ technical analysts as they focus on long-term investments. When undertaking analysis on your own keep in mind the limitations of technical analysis, that may not always be reliable