# Binary Options – Chart Analysis

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• Binomo

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Contents

## Binary Options Charts – Free Charting

Binary options charts have not always been of high quality when delivered direct from brokers – as discussed in more detail below. That is changing however, particularly with established CFD and spread betting brokers entering the binary options market.

## Brokers with Charts

Some brokers now offer high quality binary options charts for traders, and ETX Capital and IQ Option also deliver MetaTrader 4 integration.

IQ Option $10 91%* » Visit ## Where to get more charting If you have used any of the binary options broker platforms, or you are just a beginner who has looked around one or two of the platforms, one thing will stand out in a glaring fashion: the absence of interactive charts. Charts are the mainstay of technical analysis in the binary options market. Without charts, there would be no analysis of assets for trading opportunities, and without analysis, the trader would essentially be gambling. It is important for the trader to know where to access charting tools for trade analysis, as these will provide the trader with information for an informed trade decision when trading binary options assets. In this piece, we will identify some places where traders can get charting tools in order to analyze the markets and trade profitably. ## Charts Explained: ## Chart Sources Chart sources are of two types: a) Online charts are web-based charts available from the websites of certain brokers and software vendors. These charts generally do not provide a lot of flexibility in terms of interactivity and the tools that can be used with them. For the purposes of binary options trading, it is not recommended to use online charts. b) Downloadable charts as the name implies, can be downloaded either as part of forex trading platforms or as software standalone plug-ins. They are the best for the purposes of analysis of assets for binary options trading since they come along with many tools that augment the results of analysis. They are the recommended chart software for binary options analysis. Some of the charting sources will provide free access to the charting tools. There are some which are free but will require some paid plug-ins to work, and there will be those that come in a complete package that has to be paid for 100%. Some of these charting sources for downloadable forex charts that are used for binary options analysis are as follows: aa) FreeBinaryOptionsCharts.com FreeBinaryOptionsCharts.com has an easy to use (and free) binary options chart. They also have a great guide for beginners about how to use binary options charts. This is Mifune’s site and so the quality of the strategy articles is very high. Best Binary Options Brokers 2020: • Binarium Best Binary Options Broker 2020! Good Choice for Beginners! Free Trading Education, Free Demo Account! Get a Sign-Up Bonus Now! • Binomo 2nd in our ranking! a) Forex Charts Widget v1.7 Developed by Chris Craig and available for a free download from Softpedia, the Forex Charts Widget v1.7 is a downloadable chart software that allows the user to view the currency charts for several pairs. The user will have the ability to choose the time frame and apply a set of indicators that come with the plug-in. b) MT4 Charts Probably the best source for free charting information and interactive charts is the MetaTrader4 platform. This platform is available from almost every market maker broker in the forex market that there is. However, there are a few worth mentioning due to the fact that they have a more comprehensive asset base that matches the binary options asset index. Ideally, you should download the MT4 platform of a broker that has more than 40 currency pairs, all the major stock indices (or at least 8 of them), stocks and the spot metals (gold and silver, sometimes listed as XAUUSD and XAGUSD respectively). Examples of the MT platforms that you should use for your charts are those from FXCM, FxPro, Finotec and Forex.com. Virtually everything that you need for charting is found on these platforms. The best part is that it is all free and can be obtained when you download the MT4 platform and create a demo account. Another beautiful factor that works in the MT4’s favour is that the MQL programming language on which the platform was built supports the building of EAs, indicators and software plug-ins that aid in signal generation. These signals can then be exported to the MT4 platforms. Check out our MT4 guide in the forum for more info here or watch this video which explains some tips and tricks for MT4: c) Interactive Brokers Information Systems (IBIS) The word “interactive” in this broker’s name says it all. Interactive Brokers has one of the most comprehensive charting platforms for technical analysis. The Interactive Brokers Information System (IBIS) platform provides institutional level charting facilities. The charting facilities on IBIS boast of 22 configurable technical indicators, an alert wand that supports alert creation, and allows traders to use any of the three chart types (bar chart, line chart or candlesticks). The package comes at a cost though. Users have to subscribe to its use at a cost of$69 a month.

d) My FX Dashboard (from OFX)

This forex charting service from OFX allows traders to conduct lines studies, use indicators,etc. This software is not downloadable, but is a Java-enabled web-based application that allows users to switch between basic charts and advanced charts. This charting software is coded with EasyLanguage, which is the programming language that powers FXCM’s TradeStation, so you can also use it as a software plug-in on FXCM’s flagship trading platform.

e) MultiCharts

f) Free Stock Charts

Nuff said. Click here for free stock charts. (Go To “Help” in FreeStockCharts.com and view the video tutorial, it is very helpful for beginners.) Looking for Candlestick view on fsc.com, go to top left of chart and click on Price History in green then click Edit, then change the “Plot Style” from HLC Bars to Candlestick and click “OK.”

There are many other sources of charting information for use in generating binary options signals. It is up to the trader to decide on which one to use based on cost, ease of use and other parameters tailored to taste.

## Market Analysis For Binary Options

Remember back when you enrolled yourself into the School of Pipsology, we talked about “The Big Three” types of market analysis. In case you forgot, they are:

## Fundamental Analysis

One way to make use of fundamental analysis would be to go with a trade-the-news strategy.

For binary options, this can be particularly effective when you trade simple Up/Down options.

After all, you would simply need to get an idea how price may react to better/worse than expected data and how strong the reaction may be. You just have to be confident that price can reach the strike price of the option that you bought.

For example, you plan to trade the Australian retail sales report. Let’s say you have a bullish bias on the results.

Chances are that a better-than-expected result will spur the Aussie to new highs, so you would look to buy a “call” option on AUD/USD.

Now let’s say that, as you expected, we saw a better-than-expected result. Luckily, AUD/USD also rose, rising above the strike price. Paycheck time, baby!

Of course, there are a couple of factors to take into consideration when playing the news.

First is the potential for volatility. When playing a news report and buying a binary option, you have to be fairly confident that the event will spark enough volatility so that price can reach the strike price and stay above/below that level.

If you try trading a report that rarely causes a ripple, you’ll be throwing money down the drain.

Second, you have to factor in the time component of binary options.

When trading binary options and implementing a trade-the-news strategy, you may also want to consider going with one-touch options since price would only have to touch and not necessarily close at a particular level.

You can also try the Out of Range options if you expect the price to move with strong momentum away from its previous range.

With this option you don’t have to pick a direction, just decide whether or not the market will move big time in one direction or another.

## Technical Analysis

Love using those fancy-schmancy indicators like moving averages, Bollinger bands, and Stochastic?

Don’t be afraid to slap these indicators on your trading charts when you plan to trade binary options!

These are used across all sorts of trading markets and not just spot currencies.

Just make sure you have a good understanding of how each indicator works before incorporating it into your analysis.

Studying technical levels and inflection points may also prove helpful when you trade binary options.

Let’s take a look at this example on GBP/USD.

Price has just broken down from a double top.

With this behavioral pattern, price normally continues to trade lower at a distance equivalent to the height of the double top.

One way you could play this is by taking a One-Touch trade.

If the strike price that your broker offers is somewhere between 1.5450-1.5550, which is within the height of the double top, buying a “put” option might be a setup worth considering.

## Sentiment Analysis

Sentiment analysis is the task of measuring the market’s current “feeling” with regards to broad risk flows.

Are traders confident in buying up risky assets or would they rather reduce risk by buying safe-haven assets or going into cash? This type of analysis will prove to be particularly useful when trying to hop on trends.

Will EUR/USD break for new highs? Or do you think the trend is overdone and there’s not enough momentum? You can use sentiment analysis to gauge how the market is feeling.

If you’re fairly confident that market sentiment will favor a risk-on environment, you could consider purchasing a “call” option on a risk currency or asset (e.g., Australian or New Zealand Dollar, Equities, Commodities, etc.)

On the flip side, if you think a reversal in sentiment is in play and depending on how overdone you believe the move is, you could consider purchasing a “put” option on those same risk currencies or assets.

## Combination

Just as in spot forex trading, it’s not necessarily a case of choosing which type of analysis you’re going to use because they’re not mutually exclusive.

In fact, you can combine all of these types of analysis to form the basis of any trade that you take.

Fundamentals can help give you a bias as to what direction you want to take, while technical analysis will help determine the chances of the market reaching, breaking and finding support/resistance at a certain price.

Meanwhile, sentiment analysis may let you know whether the market is in a risk-on or risk-off mood.

## The Most Important Technical Indicators For Binary Options

Consider the following bets:

• Pay $45 to bet that the price of gold will be above$1,250 at 1:30 p.m. today. Get $100 ($55 profit) if you win, lose $45 otherwise. • Receive$81 now to bet that NASDAQ US Tech 100 index will go below $2,224 at 2 p.m. today. Keep a profit of$81 if your prediction comes true. If it does not, lose $19. • Pay$77 to win $100 if the USD-JPY forex rate goes above 78.06 at 2 p.m. today; you lose$77 if it does not.
• Gain $33 if you bet on the price of bitcoin will go below$379.5 at 3:00 p.m. today. If it doesn’t drop that much, lose $67. Welcome to binary options. All or nothing, one or zero, these securities are available on Nadex and the Chicago Board Options Exchange (CBOE). Binary options allow traders to make time-bound conditional bets on predefined values of stock indices, forex, commodities, events, and even bitcoin values. Like a standard exchange-traded option, each binary option has an option premium ($45, $81,$77, and $33 in the examples above), a pre-determined strike price ($1,250, $2,244, 78.06,$379.5), and an expiry (1:30 p.m., 2 p.m., 3 p.m. today).

The differentiator is the settlement price that remains fixed at $0 or$100, depending on the option condition being fulfilled. It keeps the net profit (or loss) fixed. The option premium also remains between $0 and$100. (Related: Guide to trading binary options)

## Calculating Probability

Since binary options are time-bound and condition-based, probability calculations play an important part in valuing these options. It all boils down to “What is the probability that the current gold price of $1,220 will move to$1,250 or above in the next four hours?“ The determining factors include:

• Volatility (how much and is it sufficient to cross the threshold/strike price?),
• The direction of the price move, and
• Timing.

Technical indicators suitable for binary options trading should incorporate the above factors. One can take a binary option position based on spotting continued momentum or trend reversal patterns. Let’s look at some of the popular binary option technical indicators:

• Wilder’s Directional Movement Indicators (DMI) Average Directional Index (ADX): Composed of three lines, namely ADX, DI+, and DI-, and their relative positions, this indicator aims to capture the strength of an already identified trend. Here is the table for interpreting the trends:

Position

Momentum

Here is an illustration, using 3M Company (MMM) stock:

Image courtesy StockCharts.com

Depending upon the identified momentum and trend strength, an appropriate buy/sell position could be taken.

• Pivot Point(in conjunction with support and resistance levels): Pivot point analysis helps determine trends and directions for any given timeframe. Because of the flexibility in timing, pivot points can be used for binary options, particularly for trading highly liquid major currencies. A good example (with calculation and graphs) is included in the article Using Pivot Points in Forex Trading.
• Commodity Channel Index (CCI): The CCI calculates the current price level of a security relative to the average price during any given timeframe. The average price level is usually the moving average. Time periods can be selected as desired, allowing the trader flexibility in choosing when a binary option expires. The CCI is useful in identifying new trends and extreme conditions of overbought/oversold securities. It is very popular among day traders for short-term trading and may be used with additional indicators such as oscillators. In the below formula “price” is the asset’s current price, “MA” is the moving average of the asset’s price, and “D” is the normal deviation from that average. High values above +100 indicate the start of a strong uptrend. Values below -100 indicate the start of a strong downtrend. The CCI is computed with the formula:

• Stochastic Oscillator: In an interview, the creator of the Stochastic Oscillator, Dr. George Lane, said “it follows the speed or the momentum of price. As a rule, the momentum changes direction before price.” This important underlying detail indicates extreme cases of overbuying and overselling, allowing reversals for bullish and bearish phases to be identified. The crossover of %K and %D values indicate trade entry signals. Although a 14-day period is standard, binary option traders can use their own desired timeframes.

%K = 1 0 0 ( C − L14 H14 − L14 ) where: C = most recent closing price L14 = low of 14 previous trading sessions H14 = highest price traded during same 14-day period \begin &\text <\%K>= 100 \left ( \frac < \text– \text > < \text– \text > \right ) \\ &\textbf \\ &\text = \text \\ &\text = \text \\ &\text = \text \\ \end ​ %K = 1 0 0 ( H14 − L14 C − L14 ​ ) where: C = most recent closing price L14 = low of 14 previous trading sessions H14 = highest price traded during same 14-day period ​

Levels above 80 indicate overbought, while those below 20 indicate oversold.

• Bollinger Bands: Bollinger bands capture an important aspect of volatility. They identify upper and lower levels as dynamically generated bands based on recent price moves of a security.

Commonly followed values are 12 for simple moving average and two for a standard deviation for top and bottom bands.

Contraction and expansion of the bands indicate reversal signals that help traders take appropriate positions in binary options. Overbought situations are indicated if the current market price (CMP) is above the top band. While overselling is indicated when the CMP is lower than the lower band.

A challenge in binary option trading is correctly predicting the sustainability of a trend over a given period. For example, a trader may take the right position for an index, predicting it would hit 1250 at the end of a five-hour period, but the level was achieved in the first two hours. Constant monitoring is needed for the rest of the three hours if the trader plans to hold the position until expiry, or a predetermined strategy should be executed (like squaring off the position) once the level is reached.

## The Bottom Line:

The technical indicators discussed above should be used for timely actions with constant monitoring. One major disadvantage with technical indicators is that the results and calculations are based on past data and can generate false signals. Traders should practice caution with detailed backtesting and thorough analysis for high-risk, high-return assets like binary options.

Best Binary Options Brokers 2020:
• Binarium

Best Binary Options Broker 2020!
Good Choice for Beginners!
Free Trading Education, Free Demo Account!
Get a Sign-Up Bonus Now!

• Binomo

2nd in our ranking!