Working with a short term type of trading style requires the need to master the technical analysis side of things. Learning to pick which charts to look at and knowing how to appropriately read them is going to help you out a lot over the long term. Charts are an essential part of learning how to trade binary options; you will not be profitable for long if you don’t know the ins and outs of chart reading. You will also need to know how to apply the best types of technical analysis tools onto the charts so that you can gain a deeper understanding.
Picking the right chart
You might be surprised to learn that there are more than one type of charts. Basically, the more detail you can squeeze in, the better. This is why candlestick charts are the best for traders. Bar and line charts are great for some purposes, but no other type of chart is able to fit in the same amount of information in a small space that a candlestick chart can. Plus, these charts can easily be color coded and this can give you even more insight at a gland into exactly what your particular asset is doing. Whenever you can, choose a candlestick chart. One free option that you have is called FreeStockCharts.com. They offer a decent package to get you started, but you may want something more polished.
Time it right
Now that you know what type of chart you want, your search is not yet over. You need to pick the right timeframe, too. This is actually pretty easy. You want to start right where you are. So if you are trading 10 minute binary options, you want to look at a 5 minute price charts.
But, as you’ve probably guessed, it’s not quite this easy. You also need to expand your scope. Looking at the price chart for one notch up and one notch down can achieve this for you beautifully. Again, let’s assume that we are looking at 10 minute options. In this instance, you would want to look at both five minute intervals and half hour long intervals. This will give you a feel of the short term fluctuations that might occur for you and also will let you see the overall direction and trend that the market might be currently moving in. Both of these pieces of information need to be taken into account if you want to tackle this subject correctly.
If you are trading currency pair binary options, there is no greater charting tool than the MetaTrader. This is a real time software program that you will need to download onto your desktop. It will update currency price charts as price changes occur, letting you see firsthand every move that the market makes. If you have traded in the Forex market before, odds are that you have used this tool. Many Forex brokers will even allow you to trade directly from the MetaTrader charts that are generated. As of right now, you can’t do this with binary trading since they do not especially focus on currencies, but the extra program running on your computer should not be a problem.
When you are trading other assets, such as stocks, indices, and commodities, you will need some other charting package such as eSignal that will update prices in real time for you. There are several good programs out there that you can use, some of which you might have to pay for to use. It doesn’t really matter which you decide to go with, but make sure that the programs you are using will update in real time. Fast paced action requires your charts to update quickly or you will always be behind. This can be extremely costly to you because it will ultimately lead to you making errors in judgment, so the price that you pay for a real time price chart package will definitely offset itself for you over time.
You will find, with candlestick charts, that there are certain patterns that appear over and over again. These can be important markers of where an asset’s price is headed, actually, so you need to pay attention to them. The problem here is that there are so many patterns out there and many of them are not applicable to certain styles of trading. If you wish to use chart patterns to assist you with your decisions, some trial and error will be necessary. Look around at your trading behavior and make sure that the patterns that you are looking at will actually be helpful to you.
Using a Journal
A trading journal will be of big benefit to you. Copy and paste the charts that you use into these journals and you will have a visual record of your decision making process that you can go back to learn new things. Google has a great way for you to do this, if you have a Google account.