Knowledge is one of the key features to success, in order to become a successful trader you should learn how to control the trading platform, how to follow money management rules for your trading, what kind of strategy you should embrace and most important which analysis method to embrace and trade upon.
On the financial market there are two main methods which traders follow in order to gain money, the technical analysis and the fundamental analysis
What is Technical Analysis?
Technical analysis is the most popular method among traders especially for binary option trading, the general idea of technical analysis is that history repeats itself over and over again, the history is being written as graph charts which is full with patterns, trends and templates,
Technical analysis tells us when is the right moment to hit a trade and of course, it provides an estimation with the best chances for the right direction upon historical data, a trader can prepare in advanced to hit a trade when the market provides a trigger, a pattern or templates that provides signals are called set-ups
So technical analysis is all about charts, historical and current, to optimize and to increase the prediction chances, technical analysis provides mathematical tools that follow the trend and show us another aspect of the prediction, these mathematical tools are known as indicators, you just need to ad them to the chart, most of technical analysis strategies are using indicators in order to trigger better and to increase the chances for a profitable trades.
Some of the most common indicators are: Bollinger bands, Stochastic, MACD (Moving Average Convergence Divergence), RSI (Relative Strength Index) and the most common – Moving average.
There are three main chart types, linear chart, line chart and Japanese chart which is the most popular.
Usually, traders who doesn’t know anything about technical analysis and are making their first steps on the binary option market can only guess the next market move by feeling or sense, it is also very common for beginners to trade on short term options such as one minute contract and 30 seconds options, eventually their chances to gain money on the financial market are low doesn’t go on their favor so they end up with no profits on their account.
What is Fundamental Analysis?
Fundamental analysis evaluates the financial value of an asset at any given time, the price of an asset is set by the overall financial factors, there are so many factors which determine the price that it can be almost impossible to guess what will happen next and here are couple of factor examples:
Bank statements, company revenues, politics, weather, currency rates and many more…
Due to the complexity of overall factors you can only estimate, mostly, the long term movements.
The basic difference between fundamental analysis and technical analysis which is that Fundamental conclude the overall financial factors that is reflects on the price every moment whilst technical analysis looks at the past to get conclusions for future prediction.
The great advantage of fundamental analysis is scheduled events, an event can be a financial key measure that reveals the strength or weakens of the market, sometimes an event can be a statement from one of the financial leaders and sometimes it’s just a statistical measure.
One of the best sites that has an online calendar with all important events is Forexfactory.com
Now the question is, in order to become a successful trader, which one of the methods is a better one to predict the next move of the financial market?
The answer is like any other subjects in life is mixed, as a binary option trader you should learn thoroughly technical analysis, to learn all three patterns, to adopt rules you will trade upon, tech nical analysis can even learn you money management when you create your trading plan.
Still, you should be very much aware for the atmosphere that you trade upon, you should know all about financial event notifications, you don’t want to be in a position where you place your trade and after a while you have been surprised by a sharp move due to some Bank financial statement
Sometimes the market can be deceptive, the price ranges are narrowing down while it seems that there is no sign of volatile move in the near future, if you aware of market atmosphere or financial events you might prepare in advance and not lose your money.
If I had to define the effort for a trader that initiate his steps in the market I’d say 80% to invest on technical analysis and 20% to hear more about the financial world outside.
Just remember that most of the time the news and forecast for near future are already reflected in the price of an asset, also the risk factor, everything is already calculated.
I wishing you great learning and good luck with your trading.