When you trade in binary options, the only thing you are really doing is making a prediction regarding the future price movement of an asset. That’s it. Learn all about it here in Technical vs. fundamental analysis.
Making the prediction is deceptively complicated. In reality a tremendously complex set of circumstances can influence the price of an asset. This makes predicting price movements a tricky business.
Fortunately there is a way to read the market in a way that excludes a lot of the complex circumstances at play. This is called technical analysis. Technical analysis is the magnifying glass successful binary traders look at the markets through.
Find out what you need to know about technical vs. fundamental analysis: Fundamental analysis of the markets is the sort of analysis that will make sense to most lay-persons. People who are not expert traders will for example agree that it makes sense to look at all the factors that influence the price of an asset in order to establish its true, intrinsic worth.
By comparing this value to its market price you can determine whether it is underpriced or overpriced. Based on this you can predict whether the price is likely to fall or drop.
This seems to make perfect sense, but not to the binary trader. Whereas fundamental analysis revolves around the reasons an asset’s price moves this way or that, technical analysis only looks at the consequences these movements have. This gets rid of a lot of complex permutations!
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Technical analysis assumes that the market knows all that there is to know about things that influence the price of an asset. Investors have all the relevant information about fundamental factors. That is why supply and demand is what it is, and – as a direct consequence – the asset’s price is what it is.
Price movements are not determined by fundamental factors, but rather things like investors’ predictions for the future, their expectations, and anticipation. By ignoring the fundamentals, and instead focusing only on the movement of prices through analysis, technical analysis can yield a much more informative picture of price movements than you can hope to get through fundamental analysis.
If you were to attempt to predict the price movement of an asset through fundamental analysis you would have to start off by learning all there is to know about the asset. Leaving aside the impossibility of attaining a degree of knowledge that is greater than that which the investors already have, how long would that take you?
Let’s say you determine that based on your research the asset in question seems likely to drop in value when, for example, the most recent unemployment figures are published, how likely is it that you know this, and the investors don’t?
They certainly do, and that has already influenced supply and demand, which has determined the price.
So, how can this help you in making short-term investments like binary options? The answer is simple: it just can’t.
In order to make predictions regarding the price movement of an asset during the next 60-seconds, 10 minutes or hour, only technical analysis can help. And in binary options this sort of narrow timeframes are the only ones that matter.
Technical analysis only looks at the way prices move on the chart, ignoring why. The price movements tell their own story, and point towards future patterns.
By studying technical analysis you learn which tools you can use to read price charts, and how you can recognize such patterns.
The good news, then, is that you can become a very successful binary trader without knowing anything about fundamental analysis. You can just forget all about worrying about why an asset is priced the way it is, or how news events might or might not influence its value: the market will tell you all you need to know.
The slightly more challenging news is that you will need to learn technical analysis in order to strike it rich in this market. Start by reading helpful articles on the subject here on our site.