Market analysis with IQ Option – How to do it

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Guide to Using the Market Analysis Feature on IQ Option

Majority of traders will avoid markets when an important news item is about to be announced. Why? News items often affect the markets concerned creating volatility.

The problem is, you cannot accurately predict how the markets will move immediately the news item is released. But one thing is for sure, the markets are bound to experience a period of high volatility after the news release.

Another group of traders specializes in trading when the markets are volatile. The high volatility gives them a chance to make huge profits before the markets finally settle down.

Whatever type of trader you are, you must be prepared for the news item release. IQ Option provides a good feature that makes this possible – their market analysis feature.

This guide will help you make use of this tool and decide whether you should trade when the news release occurs or not.I’ll mainly focus on forex trading.

Let’s get started.

Finding the market analysis tool on IQ Option

On your trading interface, click on Market analysis at the left side. Next click on the dollar sign ($) on the window that appears.

Using the market analysis tool for forex traders on IQ Option

Next, you must change the settings to complement your trading strategy.

There are three main settings to change.

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The impact of the news item. Here, I’ve selected medium and high impact. These news items are the ones that are most likely to affect the markets.

The second setting is the countries. Choose this based on where you’re trading from.

Finally, change the categories section. I prefer to leave all categories checked.

Click on apply to save these settings.

changing settings on the market analysis tool

Once you’ve made these changes and clicked on “Apply”, you’ll be reverted to the forex news tab.

How do the filters work?

The impact filter simply tells you how a specific news item will affect the currency pair you’re trading. If it’s low impact, you won’t see a lot of volatility in the markets as you’d see in medium or high impact news.

The countries filter simply indicates how the news is expected to be felt in a particular country. For example, news released about the EUR/USD is very likely to affect the US and European markets.

Finally, the categories filter allows you to select the different market sectors that the news item will affect. I usually select all categories.

At the market analysis window

Finally, select the particular date the news item will be released as well as the time.

Different types of financial news that will affect the markets

On the IQ Option platform, the impact of a news item is measured using dots.

1 A single dot indicates low impact news. It shouldn’t cause high market volatility.

2 Two dots indicate medium impact news. It should cause some short term volatility.

3 Three dots indicate high impact news. It should cause high volatility which might last for a while.

Another form of news that isn’t easy to represent is unexpected. For example, a terrorist attack might affect the currency and economy of the country where the attack occurs. This is a form of high impact unexpected news where extreme volatility will result.

How will news affect the markets?

Depending on its nature, a news item might cause the markets to move up or down. I’ll use the January 25 EUR/USD currency pair to show you how. I’ll also use a 5 minute candles chart to show you how this particular news item affected the EUR/USD forex markets.

Here’s a snapshot of the market analysis of the EUR/USD on January 25 at 14.30

Here, you can see that the particular news item regarded the release of Non Farm Payrolls in the US.

14.30 when the Non Farm Payrolls news would be released and currency pairs to be affected

During the morning hours, the EUR/USD markets were ranging. There were small uptrends followed by small downtrends. Right up to around 12.30 pm, You can notice a small uptrend which is then followed by a downtrend. At around 13.30 pm, the markets began to range right up to around 14.30 pm when the news item was released.

At around this time, you can see a sharp drop in prices reaching a low of 1.145390. The prices then reversed with 3 consecutive solid candles. The price then peaked at 1.148590 before starting to drop again.

If you look at the chart closely, this volatility occurred for about 1 hour after the news released. Then the prices started to stabilize at around the same level they were before the news release.

Prices show little fluctuations before the news release. The morning hours saw small uptrends followed by downtrends within a certain range. Once the news is released, the markets drop sharply and then rise sharply before dropping again. This occurs for approximately 1 hour before the markets stabilize again.

Should we trade before or after the news release?

It’s important that you analyze the market hours before the news release. Trends begin to develop hours before the news release. However, the best time to get into the market is after the news release if you want to profit from the price swings that develop.

You should also expect that these huge price fluctuations will not last long. If you prefer trading in quieter markets, wait until the news effects on the market die out. In the EUR/USD case above, this means you should have waited approximately 1 hour for markets to quiet down again.

Determining how news will affect the markets should not worry you. The price movements will tell you where the markets are heading. All you need to do is be prepared for the change when it occurs.

Should I trade when there’s news in the market?

Should I trade when there’s news in the market?

You might be probably asking this question. The answer largely depends on your preferences.

If you prefer dealing with certainty and low risk, trading on markets where news items are about to be released should be avoided. On the other hand, if you prefer trading in volatile markets, this might be a good idea for you.

Choosing the right markets to trade is an important part of trading with market news. I’ve created an extensive guide showing you the Instructions for choosing the safest currency pair to trade at IQ Option.

Trading with news is one of the best ways to make quick profits leveraging market volatility. However, it’s not suitable for all traders. One reason for this is that you don’t know how far the markets will swing before reversing. This can result in huge losses.

Have you ever traded in markets after a news release? Please share your experience in the comments section below.

Good luck!

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Technical Analysis. How It Works?

In this blog we often discuss technical analysis and its peculiarities, providing you with strategies and explaining how the indicators work. Yet, not all traders, especially those who have just started exploring the financial markets, understand what technical analysis is and why it is important to use it. Yet, even those who consider themselves experts might find this article useful.

What is technical analysis?

Technical analysis is an attempt to understand and predict future price movements based on the past performance of the price action. As any prediction, technical analysis is not 100% accurate and can provide false signals. Nonetheless, this method aims to reveal the most likely outcome based on the current conditions.

Stocks, currencies, cryptocurrencies, commodities, indices and ETFs can all be subject to technical analysis. In other words, principles of technical analysis are universal and can be applied to any instrument/asset. More than that, all assets can be analyzed using the same tools (indicators).

Technical indicators menu and where to find it

How it works?

Technical analysis works for assets where the price is influenced by the law of supply and demand and doesn’t work for securities where prices are regulated otherwise (say, by political decrees).

Moreover, there are several assumptions that have to be fulfilled in order for technical analysis instrument to work properly.

High liquidity . The underlying asset has to be traded in sufficient volumes. Low-liquidity assets are easier to manipulate and harder to trade in general. Factors associated with low-liquidity trading make it unsuitable for technical analysis.

No artificial price changes . A stock split, being an artificial price change, does not affect the intrinsic value of the company at hand, yet it dramatically changes the stock price. Suchlike events cannot be addressed by technical analysis.

No extreme news . Certain events — like a terror attack and the demise of a company’s CEO — cannot be predicted by the means of technical analysis.

Basic principles

Price discount everything . Technical analysts believe that the price action fully reflects all publicly available information. In other words, all past events and announcements about the future ones have already been reflected by the asset price. The price, therefore, reflects the fair value of the underlying asset. This information is then used to predict the future.

Price movements are not totally random . There are periods when prices trend and periods of non-trending prices. Technical analysts believe that it is possible to identify trends, both short and long-term, with the help of indicators.

‘What’ is more important than ‘Why’ . What is the price and ‘What will it be?’ is usually the only questions technicians ask themselves. While fundamental analysis is concerned with the reason behind price fluctuations, technicians are not. To technicians, prices go up when demand surpasses supply, and that’s it.

How to use technical analysis in practice?

A lot of technical analysis specialists apply top-down approach, first evaluating broad indices, then separate industries, and only then moving to individual stocks. No matter what asset and on what timeframe you analyze, the steps you take will be approximately the same. First, you might want to identify the trend (e.g. Moving Average or Alligator). Then you might want to identify support and resistance levels, upper and lower boundaries than the price action cannot leave on a certain time frame (here a horizontal line can be of great help). Next you might want to identify the momentum (e.g. MACD or any other oscillator) and optimal entry/exit points. As a final step, you might want to compile all of the above-mentioned data and use it to make a prediction.

The price chart with Alligator, Awesome Oscillator and horizontal lines applied

Conclusion

Experts in the field of technical analysis consider the market to be explained by 80% psychology and only 20% logic. It is, therefore, important to learn to interpret signals you receive from the market but don’t be surprised that it takes time to learn and master technical analysis.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.

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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

Trading the News

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.

In the end, the key is for you to learn from all your mistakes and gain experience. Over time, this process will help you fine tune your analysis and help you develop good trading practices.

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