Table of contents:
- 1 Basics about chart analysis with binary brokers
- 2 BINARY OPTIONS CHARTS
- 3 Chart analysis strategy for Binary Options
If you want to trade Binary Options, you should carry out chart analysis. We recommend various brokers for this purpose:
IQ Option offers a specially developed trading platform that is ideally suited for technical analysis. It comes with all tools such as indicators, traders work with real professional charts. Also, the other brokers are offering the tools you will need to do a professional chart analysis:
- Chart types
- Drawing tools
- Different timeframes
Basics about chart analysis with binary brokers
There are not many brokers with really good analysis tools yet, so we have named the corresponding providers above. This has its background: Binary Options are traded differently from other assets and derivatives. There are no buy stops and no stop-loss management. But these methods have so far forced technical chart analysis.
Since Binary Options are only booked in and the trader then waits for them to expire, many brokers were initially of the opinion that a full chart analysis was not that important. However, it is now widely accepted that this is also very valuable for Binary Options.
However, some of the experts of the brokers you can meet today – such as the staff at IQ Option – came from the field of Forex and CFD trading. There the analysis tools are traditionally very sophisticated. So today we are seeing a trend to implement such tools in binary options platforms as well. It should be noted, however, that if you want to quickly book a binary option from your smartphone, real, comprehensive chart analysis reaches its limits – the display is too small for that. Without buy and loss-limiting stops, it is not as compelling as in Forex and CFDs. Nevertheless, it helps traders in their trading decisions.
Using chart analysis for binary trading
Traders must look at the big picture before taking any steps. This is the only way they can form an opinion about what is happening. At IQ Option, for example, the tools are designed to be practical. The trader can first look at the big picture on a higher time level and then make an analysis for the planned time period of his option.
It should be noted that there should be a trend during this period. Only in this way can the Binary Option make a profit. A trend can be identified: If several candlesticks or OHLC sticks show a movement in one direction, there is first of all a basic probability that this trend will continue. There is the chart technical approach for this, that an entry can occur when the second or third high/low is crossed in one direction.
Entry is also possible after resetting. If there is an established trend, which we detect after the fourth bar in one direction, it is possible to re-enter in this direction until the second reset. If you use candlesticks as chart representation, you can very well determine by means of certain formations whether the trend is approaching its end or even tilting at this moment. Buy signals are also generated when certain significant points are crossed, such as a high/low of the last few days (up to three days back) or the last few hours, if the trader chooses a shorter duration.
Example for the application of chart analysis for binary options
Many traders want to book simple binary call or put options over the life of a day. The Facebook share, among others, may be suitable as an underlying. The morning after the opening of the exchange, the trader decides whether the Facebook share should rise or fall on the trading day that has started. The charts of the last week and of the last month or quarter serve as reference points.
The annual chart can also still be very valuable. It is also advisable to consider fundamental events in addition to technical chart analysis. These can be, for example, interest rate decisions by central banks, the publication of quarterly figures of large companies, or changes in various fundamental indices (purchasing managers, consumer prices, etc.). It should be noted, however, that in day trading this information is only “good to know”, the trader has no time for a detailed analysis.
If, on the other hand, Binary Options last longer, which is possible with many brokers (even over weeks and months), the trader should take a closer look at the fundamental events. In purely technical chart analysis, however, the trader derives the majority of his trading decisions from the chart alone. In this example, the following should be noted:
- Do the daily charts in the three-month chart form a trend?
- Where are the points of crossing daily highs/lows?
- What is the nature of volatility?
Near a significant entry point – for example, before the high of one of the last three days – the trader waits for an entry signal in the intraday event. This consists of three (alternatively, but more uncertain: two) bullish ten-minute bars. They can also be five-minute bars, but the shorter the selected time unit, the faster the selected trend can end. When the intraday signal is reached, the trader enters the binary call option.
How to read and analyze charts correctly will be explained in detail in the next articles.
BINARY OPTIONS CHARTS
Binary Options Brokers, like all brokers, use certain chart types to display price charts. Basically, these price charts represent the price on one axis and time on the other. The way they are displayed varies greatly. We would like to discuss the three most common chart types:
- Line chart
- Bar chart
However, bar charts are not very common among Binary Brokers. At best they appear in professional charts if they are offered. There are always line charts, candlesticks very often. Professional charts offer more and more brokers, but this is not yet the rule. These are charts that offer possibilities comparable to MetaTrader 4 and similar programs. They also contain time frames and indicators.
The Line Chart
The line chart represents time on the horizontal x-axis and price on the vertical y-axis. It is the most frequently displayed type of chart for stock market prices, which can always be seen on television and also online. The price is represented by a simple line.
In some cases, the area under the line is colored differently until the current time. This can be used for the faster gathering of information. Line charts offer the advantage of a very simple display, which allows the price trend to be seen with a fleeting glance. However, compared to other representations, they lack essential detailed information that can be very important for trading decisions. Advanced traders therefore often use other charts. Nevertheless, they often do not do without the line chart, which allows them to see the big picture in a flash.
The Bar Chart
For a long time, professional traders almost exclusively used bar charts. Of course, this had something to do with technical development. More complex chart displays such as candlesticks, although they had been around for a long time, were hardly displayed on the computer until the 1980s. Although the bar chart is relatively simple, it has great advantages. The price is not shown as a line, but as bars, with individual bars representing the price range in a unit of time.
Stock traders today still like to work with bar charts. The time units can be, for example, one minute, five to 30 minutes, one hour or one day. For ultra-short time units when scalping or trading Binary Turbo Options, these simple bars are best suited, better than candlesticks (which are then hardly visible visually) and also better than the OHLC bars, which also show the opening and closing price:
Real bar charts (bar charts) do not show these, but only the absolute high and low of the respective time unit as well as the bullish or bearish tendency due to their coloring (green or red). If you want to look at a 30- to 60-second chart, you will often be presented with a real bar chart that really only consists of differently long and different colored lines.
Candlesticks were already in use in Japan in the 18th century, and at the end of the 20th century they appeared in the western world of traders. The candles have a body that has a white (green) or black (red) colour depending on the upward or downward trend. On this body, which can be of different length, there can be wicks at the top and bottom.
The reading is as follows: Between opening and closing price is the candle body. The wicks indicate the difference between opening or closing and the absolute high and low. There are also candles without a top or bottom and also without a wick: The opening/closing price was also the high/low. There are also candles without body, they look like a cross.
This so-called dojis show great uncertainty about the trend because they opened and closed at the same level. Candlesticks are very suitable for chart analyses because there are very typical candles and also very typical combinations (so-called patterns of up to five candles), which often stand for a trend reversal. Since 1990, candlesticks have become the most frequently used chart representations, although there are various other possibilities, all of which are also very interesting.
Equivolume charts, for example, are candlesticks with different widths, thus showing the trading volume. Renko charts are also similar to candlesticks, but they only have a wick on one side, which should make it easier to keep track. Ultimately, in 2017, traders worldwide will most often use line, bar, OHLC, and candlestick charts, the latter being absolutely dominant. There is a reason for this: they are ideal for trading at all-time levels from around five minutes to weeks of position trading.
Chart analysis strategy for Binary Options
To go more in detail I want to show you are working trading strategy for Binary Options. It is easy to use and you can trade it on any asset, any timeframe, and any chart. If you are using candlesticks you will get more information about the market. It is important to use this chart type.
The strategy exists in prices that are touched more than one time. Also, it is called a support and resistance strategy. You will always read about this strategy on the internet and most of the time you will fail to trade it. That is because you do not work with the correct entry signal.
To show an example:
As you see in the picture first you have to find a strong price area for support and resistance. After finding that you are waiting for an entry signal which is a long wick candle (pin candle). This strategy can have a high hit rate. The candle formations just show you that buyers or sellers are coming into the market quickly.
The long wicked candle goes first up and all buyers are trapped in the trend. Stronger sellers come in and press the price lower. All buyers are closing their positions and the market continues to fall.
Conclusion: Chartanalysis is very important for profits in Binary Options trading
Before you enter a trade you should have a trade idea. It is important to use a chart analysis to find a correct forecast of the price. On this site, I showed you different methods for analyzing the market. The long wick strategy is very useful and can bring you a lot of profits.
You should try the chart analysis with a demo account. This is an account with virtual money so you can trade without any risk and you can try different types of strategies.
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