Trading binary options requires that you predict how the price of an asset will move by a certain time. Sometimes you will simply predict that the price will go up or down and at other times you may think it will or will not reach a certain level.
Whatever you trade, whether it’s a share price, index, commodity or currency pair, success in binary options trading is about predicting a movement correctly and doing it consistently. You need to be right more often than you’re wrong if you’re going to make a profit. Therefore, to achieve success, you can’t leave anything to chance.
Binary options trading aren’t gambling if it’s done correctly. If you rely on a hunch, if you use guesswork when deciding the way a price will move then, at best, you’ll be right no more than 50% of the time. That’s not good enough because you’ll end up losing overall when you really need to win to make it worthwhile.
Reasons for Change
Sometimes prices may seem to move in a totally random pattern. At face value, there may be no reason why a share price has risen or why a currency has weakened. The thing you need to realize to trade binary options successfully is that prices never change without reason. There is always something that causes a price to alter. It may be an actual or predicted event, it may be something that directly or indirectly affects an asset or it may simply be market sentiment.
Being able to recognize what causes a price to change can be the difference between success and failure in binary options trading. To be consistently successful, you need to recognize events early and often, enabling you to maximize your profits. In order to do this, you have to undertake analysis.
For binary options trading, analysis is generally of two types:
- fundamental analysis that takes account of current factors and events that affect prices
- technical analysis that looks at past price movements and uses them as a basis to determine how they’re likely to move in the future.
It’s not necessarily a case of choosing which type of analysis you’re going to use because they’re not mutually exclusive. Prices do move for a variety of reasons, often due to a combination of factors, so the more analysis you undertake, the more informed you’ll be and the better your chances of predicting price movements correctly. Using a combination of fundamental and technical analysis will increase your chances of success because you’re basing your predictions both on past performance and current events.
Given that you probably don’t have unlimited time to devote to the exercise, you may concentrate on the type of analysis with which you feel most comfortable or which you believe is most effective. This may take a little time to establish but the effort will prove worthwhile. Employing either type of analysis is better than nothing but using both for the same asset is even more likely to produce accurate predictions.