How to Perform a Binary Options Analysis
Binary options analysis is the practice of analysing a binary options trade prior to execution. Before taking on a trade in any market, it is necessary to carry out technical and fundamental analysis of the asset you intend to trade in order to increase the chances of success. The binary options market is no different. Without binary options analysis, trade would be more of guesswork and nothing would distinguish it from the roulettes and other stuff that belong to the casinos of Las Vegas. In binary options, there is no place for gambling or guesswork in trades; leave that to the guys in Vegas.
Sometimes, binary options trades are referred to as bets. I really do not like this terminology, because trading is not something you pick up from the street. If one has decided to trade binary options, it has to be taken seriously and learning to perform binary options analysis is an integral part of the learning process.
Binary options’ trading is all about predicting the directions and behaviour of assets. Since the same assets that are traded in their respective markets are the same ones we will encounter in binary options, it is necessary to know how to analyse these assets technically and fundamentally. When the trader has mastered this, he will be able to carry out solid binary options analysis.
Let us take an actual trade example. This trade was a Touch/No Touch trade for the EURUSD taken on October 25, 2011, with a 24-hour expiry. We placed a No Touch binary option trade for the EURUSD, predicting that the EURUSD would not touch the price barrier of 1.4031 before expiry.
The trade was successful, as the EURUSD did not reach the price barrier before the expiration date. A total of $55.65 was staked in the trade, with a profit of $44.35, giving us a total payout of $100.
Now was this a product of guesswork or a trading hunch? No. This was a product of technical and fundamental analysis carried out on this pair prior to the execution of this trade.
The Binary Option Analysis for this Trade
The first step in performing a binary options analysis for this trade was to locate a chart for the EURUSD to analyse. Since most binary options brokers do not offer charting tools, we had to locate a forex broker whose trading platform had charts or us to use. We located one and started the analysis.
In the financial markets, the fundamentals of an asset always supersede the technicals. This is why we did a fundamental analysis first. At the time of analysis, there was a meeting of the Eurozone financial ministers to determine how to put together a rescue package for Greece, which was groaning under a sovereign debt crisis. At the same time, Italy was also on the radar as its debt reached a staggering 600billion Euros. These were indeed bad times for the Euro and the markets had responded accordingly. The meeting was due to end later that week with the issuing of a communiqué to announce measures to help these countries out. We knew that the markets would be range-bound as traders looked to the outcome of that meeting for direction. Thus, we did not see the Euro climbing past the 1.4000 psychological barrier before the end of the meeting.
We headed over to the charts to see what the price action was saying, and we got the confirmation we needed. A strong resistance had capped the EURUSD at 1.39605 for three days straight. Thus, we were able to set an appropriate price barrier that we felt that the EURUSD would not achieve in 24 hours.
The trade was then setup on the binary options platform, with a price barrier of 1.4031 and a 24-hour expiry. As at the expiration of the trade on October 26, 2011, the resistance cap was yet to be breached, putting us in the money.
Binary options analysis is not about guesswork, or trading on a hunch. You must be able to perform the appropriate analysis of the fundamentals of the asset you want to trade, look for confirmation on the charts and then execute the trade accordingly.