Although there exist many approaches used by traders and asset managers to forecast individual asset prices in financial markets, fundamental analysis and technical analysis are two disciplines among the most commonly used. Technical analysis is best defined as the use of charts and historical prices in order to study market price activity and evolution. The ultimate objective is to use this information in order to attempt to forecast future price trends.
In order to fully understand and dig into technical analysis, you need to acknowledge 3 main principles that lay the groundwork for this practice:
- Market prices move in trends
- Market action reflects all known information that is available
- The past predictive value of price patterns that reflect the bullish or bearish psychology of the marketplace are assumed to apply in the future.
Simply put, technical analysis consists of a set of graphical and mathematical tools that can be visualized in real time on graphics that traders use to help them improve their investment decisions.
Advantages of technical analysis for binary options trading
Technical analysis presents many advantages for retail traders, it requires a lot less data, knowledge and experience than fundamental analysis. You just need an historical graph of an asset price and volume to run the most basic technical analysis. We want to highlight below the main advantages of technical analysis:
- Technical analysis can be applied to all asset classes (stocks (equity), forex, indices, commodities…)
- Applicable to any time horizon (short, medium and long-term) and mostly used for short-term trading decision that is the most relevant for binary option traders
- Established framework allows diverse markets to be followed at once, the most advanced trading platform provided by binary option brokers allow you to build advanced technical indicators in one click.
- Permits the focus on trending markets, as opposed to markets that are not “moving”.
Nevertheless, you should always remember that technical analysis is a subjective science, some say its mort an art than a science and that no technical indicator will be right 100% of time. Technical analysis is here to help you formulate hypothesis about the market direction but is in no way an absolute truth.
As a reminder, the regulated binary options broker that proposes the most complete offer in terms of technical indicators and chart analysis is OptionTime. Don’t hesitate to have a look at our detailed review of OptionTime for further details.