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Technical Analysis

Binary options provide a great avenue that investors can use to make profits. It relies on the changes in the prices of the underlying assets and the movement of the market. In the trade of binary options, traders are required to speculation the direction that the price of the underlying asset is likely to take. The market provides two main options in this regard. These are: either the price will go up or it will come down. However, the main question is how do the traders in the binary options market determine what direction the prices will go?

There are two main things that drive the stock market; fundamentals and market sentiment. The fundamentals involve things like the profit margin of a stock option or company, the debt load, cash reserves and intrinsic stock value. These are the business end and rock hard base on which analysts determine the price of a stock. However, there are times when the price of an underlying asset is determined more by the way the market feels about the particular asset. In these cases, the fundamental analysis does not really matter as the market dope not respond to the fact and figures as is often the case.

This is where technical analysis comes in. Many people believe that in the trade of binary options, technical analysis is more important than the deep financial knowledge that other markets require. In more ways than one, this particular sentiment is true.

So what is technical analysis  ?

Technical analysis is the study of the past trends in terms of the price and trading volume data with the aim of predicting what may happen in future. The practice is old in the financial sector, going way back to the days of tulip trading in Holland and rice trading in Japan. In Japan for instance, the rice traders found out that by tracking the trend of past rice prices, they could almost correctly determine the price of rice in the coming season. In this way, they could endeavour to profit from the changes in the prices by playing the market. In fact, to date, the Japanese candlestick method of technical analysis in which set symbols are superimposed on price charts is still used. However, in the world of technology, all the data is kept in a database and a piece of software run on the database to track the changes in prices over time. Based on the results, traders in the binary option platforms can make their trades.

Japanese candlestick                      Candlestick chart

Candlestick    Candlestick chart

As such, even while trading in binary options is a new idea in itself, so to speak, the idea of applying technical analysis on the binary option data from past sales and periods is one that has been in use for a long time. The success of the technical analysis method in other markets is what has made it attractive to binary option traders and brokers alike. To ensure that you are constantly making money on the binary options platform, it is important to make the correct predictions; this is what technical analysis of data provides.

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