Technical Analysis vs Fundamental Analysis Of Binary Options

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Technical Analysis versus Fundamental Analysis Of Binary Options

Technical analysis vs Fundamental analysis. It’s a highly debated topic with traders from both side claiming their analysis method to be better.

Whether it is to make a living or for just the sake of side income if you have chosen binary options trading, the decision is absolutely right if you have the passion for the same.

There should be a lot of dedication and effort from each and every trader to be successful in this industry.

It is true that many beginner traders with minimum trading knowledge are earning well with the help of auto trading platforms and with the assistance of signals and other indicators.

But the survive in this field for a long term you should have the knowledge about binary options, how trading technique works and also, you will need a lot of market knowledge.

Coupled with knowledge, analysis plays a big role in trading. Basically, there are 3 categories of analysis:

  • Technical Analysis
  • Fundamental Analysis
  • Sentiment Analysis

We will discuss on technical and fundamental analysis in this article. They are the bread and butter of any trader’s trading regimen.

You need to know how these two differ and the role they play in analyzing the market. Ultimately, to trade profitably, you need to perform both. Let us first understand what technical analysis is.

What Is Fundamental Analysis?

Binary Options offers multiple trading asset types. This includes forex pairs, cryptocurrencies, commodities, indices, stocks, and more.

Each of these asset type has hundreds of different types of assets. Each asset has its own market which is influenced by several factors.

Fundamental analysis is nothing but analyzing these internal and external factors to analyze the asset market.

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This analysis results in an evaluation of the intrinsic value of the asset. The factors mentioned here are all the factors outside the price movement of the asset.

So what are the factors affecting the price of the asset? It completely depends on the type of asset. Like we previously mentioned binary options offer multiple asset types.

So if you trade stocks, then you will look at the details of the company whose stock you are trading.

Company analysis can include competitive advantage, revenue, growth rate, market share, profit margin, SWOT, Earnings Per Share (EPS), etc.

Generally, there are 3 broad categories of fundamental analysis:

We discussed the company factors above. Economic analysis includes GDP, inflation rate, interest rate, budget, tax rate, demographic factors, inter-country relations, etc.

Industrial analysis includes product analysis, industry growth rate, product competition, tax structure, import and export duties, technological advancement, industry life cycle, etc.

There are other factors such as political, demographics, etc that are also considered in fundamental analysis.

Combining these factors, a trade predicts the future value of the asset. Technical analysis is also used to do the same, but then how is it any different?

Technical Analysis or Fundamental Analysis for Binary Options?
By Binary Diaries

One of the dominant debates in the financial market analysis is the relative validity of the two major tiers of analysis: Fundamental and technical. In Binary Options and Forex, several studies concluded that fundamental analysis was more effective in predicting trends for the long-term(longer than one year), while technical analysis was more appropriate for shorter time zones (0-90 days).

Combining both approaches was suggested to be best suited for periods between 3 months and one year. Nonetheless, further empirical evidence reveals that technical analysis of long-term trends helps identify longer-term technical “waves”, and that fundamental factors do trigger short-term developments.

Most Binary options traders abide by technical analysis because it does not require hours of study. Technical analysts can follow many currencies at one time. Fundamental analysts, however, tend to specialize due to the overwhelming amount of data in the market. Technical analysis works well because the currency market tends to develop strong trends. Once technical analysis is mastered it can be applied with equal ease to any time frame or currency traded.

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Technical or fundamental analysis: Which one should you choose?

There are loads of strategies for the trading binary options, forex or cryptocurrencies that can be grouped into two categories: fundamental a technical.

Which of them is more efficient?

Is it possible to use technical analysis without using fundaments? What do the two terms “technical” and “fundamental” mean? If you read our today’s article, you will get answers not only to these questions.

Technical analysis

We all know what technical analysis means. Technical analysis includes trend lines, formations, indicators, oscillators etc. One of the premises the technical approach is based on is that history repeats itself. Therefore, if you find out that X was followed by Y in the past, it is likely that the same or similar pattern will repeat in the future.

If you are a trader using graphs, trend lines, pin bars, indicators, Fibonacci lines etc. you are regarded to as a technical trader. In terms of binary options, these strategies assume that the specific formulas and monitoring techniques boost our chances to forecast in which direction the trend is going to move. These strategies are used by the vast majority of binary options traders.

Fundamental analysis

Unlike technical analyst, the fundamental analyst explores macroeconomic data. If for example, you want to trade EUR/USD you should be aware of all relevant information concerning the economies of both the EU and the USA i.e. their payment balances (export and import), central bank’s exchange rates, unemployment rate, real estate market, political situation etc. Based on the data, you will then determine the final rate and speculate over whether it is too high or too low.

This type of strategy can be efficiently applied for trading shares, as well as cryptocurrencies. See Fundamental analysis part 7.

Which one to choose

If you ask which of the two analyses is better my question is “both, depending on the situation”. They both have some specific features. The technical analysis works better in the short run. Hence, if you are a daily trader the technical analysis should help you more. On the contrary, the fundamental analysis performs better in the long run.

All depends on the type of trader or, in other words, the way you want to trade.

As a forex trader you should not rely on one analysis only. Trading technically doesn’t mean ignoring fundamental factors. If you are a technical trader and want to be informed of the fundamental aspects I recommend that you watch forexfactory.com, offering all important macroeconomic news. During periods of increased volatility your technical analysis might not show you the correct picture.

The minimum each trader should know of the technical analysis is: Never trade when important (red) news are being published. The same applies vice versa. As a fundamental analyst and trader you should assess the situation but it is not reasonable to trade against a strong technical pattern. You should know at least the essentials and be cautious, especially when it comes to premature highs or lows, strong support or resistance levels etc.

It’s not either or. Technical or fundamental. While the technical analysis works better for shorter periods, the fundamental analysis is useful for longer periods of time. Keeping this in mind, I recommend that you combine both. If you want to go in one way only you can do so but as a good forex trader never forget that there is a second side of the coin, respect each other and don’t step into each other’s zone.

You can be a traditional user exchanging money such as USD for cryptocurrency at a certain rate in the same way as you do when exchanging USD for euro before your holiday.

You can leave your crypto (litecoin, bitcoin or any…). in your wallet or at an exchange. Later on, once the value has increased take the crypto and convert it back into USD. Ideally, you will get a multiple of your initial investment. If you had retained all your money in bitcoins from 1 January 2020 to 31 December 2020, you would have earned around 1300 %, i.e. 13 times as much as you had at the beginning of the year

Or, you can speculate on the exchange rate of cryptocurrencies to earn money in the short run in the same way as on Forex. You can do this for example with or IQ Option.

Leverage trading

With the traditional holding of crypto, you cannot use leverage for trading. There is nothing that complicated about leverage trading as it may appear at first sight. Leverage trading offers you to multiply your initial investment. If you have on your trading account, let’s say USD 10 000 and use a leverage of 1:10 you can open trades as if you had on the account USD 100 000. Your earnings will potentially be ten times bigger. The bad news worth mentioning is that the same principle also applies to the opposite direction when you lose.

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

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    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

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