In general, binary options are short-term investments that require research and technical analysis. Because of this, analyzing and interpreting binary options charts is very important to the success of any trader, as it will be difficult to be profitable without knowing the ins and outs of chart reading and technical analysis. These trading charts don’t have to be intimidating and you can become a successful trader by learning how to use charts to aid in your overall trading strategy.
Duration
Since binary options are often traded on relatively short time frames (Often the end of the day, hour, minute or even 30 seconds), it is key to analyze the charts within a set time frame that suits the trading or analysis style. For example, if trading an asset that expires in one hour, it would be of little value to look at a chart with a five-year timeframe.
Similar time frames may return to each other, confirming trades, but there are limits to the use of unrelated time scales. The chart can be broken down by time as follows: 1 minute, 2 minutes, 5, 10, 15, 30, 45, 60, 90, daily, weekly, and monthly.
As mentioned above, sometimes, it may be beneficial to use multiple time frame charts when examining binary options trading possibilities. When doing so, be sure to look at the longer-term chart first – this should give the overall long-term trend.
From there, you can examine the shorter-term charts, and establish entry points that you want to get into the trade. For example, if the daily chart shows a bullish signal but the weekly chart shows a bearish signal, the trader may wait for each day to turn bearish before placing your trade. Longer-term trends will then hopefully be less likely to oppose short-term trades.
Live Charts
Binary option chart type
Candlestick chart
Many technical analysts believe that market trends are reliable predictors of future events, but also provide entry and exit points as well. Looking for indicators on the candlestick chart will allow you to decide whether it is the right moment to open any call or put.
Candlestick charts are a visual mix between line charts and bar graphs, creating a combination that presents more information than is usually available in more traditional charts. The name “candlestick” comes from the thin bars at the top and bottom, which display the high/low range of the day, plus the opening and closing prices (thus resembling the wick of a candle).
These candles are arranged in the same way as the basic graph, with a new ‘candle’ for each time unit. ‘Wicks’, and more importantly their relative length, can add additional information about trader sentiment.
Skin candlestick charts can tell traders whether buyers or sellers are “winning the argument” in terms of a particular asset. Using a candlestick chart along with some technical indicators can push your trading strategy to the next level. For more in-depth analysis of candlestick patterns, see our full article.
Binary Chart Indicator
There are many chart indicators to choose from that can make your head spin. ( See why price action is important ) Technical analysis is a big subject, and one with very few definitive answers. All charts are useful in their own way, so it is important to understand how and when they should be used in your trading strategy.
Let’s look at some of them to give you an idea of how they can be used in binary options trading. Moving averages – Many binary options traders use multiple moving averages. Some even build trading strategies that revolve around asset prices crossing moving averages over time. A moving average is a trend following indicator that is based on the historical price of an asset.
Moving averages can be calculated in two ways, one where all historical prices are weighted equally ( Simple Moving Average ) or another where weight is given to recent prices ( Exponential Moving Average ). Bullish and bearish signals are evident when the price of an asset crosses its moving average, or when there is historical price support in relation to the moving average.
- Moving average convergence difference (MACD) – The MACD is a trend indicator that displays the relationship between the moving averages of an asset’s average (the most commonly used values are the 12, 26, and 9-day moving averages). From time to time the MACD can display strong bullish or bullish signals depending on when the asset price and the MACD indicator diverge, the MACD rises dramatically, or there is a MACD indicator and signal line.
- Stochastic Oscillators – Stochastics – An indicator that compares the closing price of an asset to its price range over a certain period. The theory behind stochastics is that in a rising market, prices will usually close near their highs, and when the market is falling, prices will close near their lows. Stochastics are usually displayed in numbers between 0 and 100, or -100 and 100. Traders start to pay attention, when the value moves above 80, or 20 – assuming a scale of 0-100.
- Fibonacci numbers – Fibonacci is a mathematician who identified sequences of numbers that repeat throughout the natural world. Recently, analysts have seen a similar pattern often occurring in the trading market as well. They can often be used to try and establish support and resistance levels.
- Volatility – Not strictly a price chart, but the VIX downward volatility measure is a useful graph to keep an eye on. Especially if trading ‘greeks’ is important in your trading strategy. Border and Ladder options will be very sensitive to volatility, in terms of value judgments.
- Relative Strength Index (RSI) – A momentum oscillator that measures the change and speed of price movement. It allows traders to see oversold assets, and ‘failure changes’. It moves between 0 and 100.
Binary options chart strategy in real time
Although binary options charts can be very useful in determining entry points for binary options traders, and can provide valuable insight into the historical performance of an asset, they must be fully understood in order to be fully utilized. It is also important not to let emotions get in the way of the displayed chart. If the moving average has a significant downward trend like a downward cross, don’t let your emotions tell you that this isn’t important. Indicators tell a story that as a trader you must hear.
Using charts can be very beneficial when done correctly, but you must educate yourself and determine which patterns and technical indicators you choose to use in your trading strategy . Every trading strategy is going to be as individual as the person using it, so there are some ‘right and wrong’ answers when it comes down to it. A demo account can be a good place to experiment with trading strategies and see what works.