How to read Binary Options charts Binary Options 2020

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How to Read And Understand Charts

Binary options charts are used by traders to track the progress and movement of various assets. There are multiple types of charts used for numerous types of trading, but there are some common ones that you will see more often. From simple one screen line formats to multiple screens displaying various assets and data, it is essential to make sure you have the data you need to be able to trade effectively.

Each one follows a similar format. First, you have the y-axis which has numbers written up and down the side of the chart referring to price; then there is the x-axis along the bottom which represents the time or date. It is necessary, when it comes to online trading, to ensure that all data is shown in real time to be able to trade effectively.

The type of chart that you will use will depend on the source of the data and the options that you are trading in. From simple charts to more complicated options that offer a more detailed analysis, there are a whole host of solutions available to traders no matter what level and experience you have.

In this guide, you will learn:

    What binary charts are and how they work Why Identify the different chart types How to use different charts advantageously

Take your next step:

What Are Trading Charts

Charts are used to display data in various formats. When it comes to binary options, they are used to demonstrate the movement of an asset in a specific time frame and the historical data of that asset. This information can then be used to study the various assets, identify trends and help you to understand the movement of the different trade types offered; commodities, stocks, indices and currencies.

It is much easier to trade when you have the historical and current real-time data available to you as you are more likely to be able to identify patterns and use them to make successful trades.

Those traders who are just starting can use the basic formats to understand the price of an asset and the trends over time. Beginning at a basic level is probably better, to start with as it allows you to become familiar with the various assets one by one. As you get more experienced with charts, you can begin to examine them in greater detail and look for more in-depth data.

The type of chart that you will use will depend on the options that you are trading in.

The Different Types of Charts

Tick, line and candlestick charts each of the different types serves a different purpose, and some of them are more complicated than others.

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For simple trade types such as short term, High/Low options involving one asset type you would use a simple tick or line chart. For more complicated trades, when you need more information, you might use a candlestick chart (candlestick because it looks like a candle with a wick coming out of the top).

Many brokers offer a simple line chart which is OK for necessary trades and beginners, but for those who need more data and in-depth analysis, an alternative could be better. It can also depend on the types of assets you’re trading, some assets are faster moving and need more chart options and data.

There are many services online that offer more detailed analysis but before you choose it is essential to ensure that you understand what you are looking at and how to use the data presented.

Choosing Your Chart

The chart that you use will depend on the type and number of assets that you are trading in. It will also depend on your level of experience and your ability to read and analyse data.

Brokers have their form of charts on their trading platform that is displayed when you click on to their trading platform. These vary significantly between brokers and while some are fundamental others can be much more advanced. If you prefer to have a lot more data to analyse, then you will need to choose your source of data very carefully.

Sometimes they can be very basic so for those that prefer more information you can use chart sites with more advanced formulas. Avoid the temptation to rush in and get caught up in the buzz of your first trade. Take some time, analyse the various information that is available to you, have a look at the various data of the assets that you think you might choose and start to become familiar with the trends of each.

How to Use Charts And Data

First of all, you choose your asset; usually in a search box above the chart. Next, you pick your time frame; this is generally in the form of a drop-down menu next to the asset search box. If you want to compare the performance of two different assets, then you can choose to use the comparison tool.

To alter the term, you can usually zoom in and out to check the performance over a day, week, month, year etc. Now while this type of search functionality is offered by some brokers, for others, it is a case of scrolling through and choosing your asset and then clicking to reveal a simple data display.

There are various sources of information that will answer questions about the different charts and how to read them, but if you are unsure and nervous, you can always use a demo platform to get familiar with using the information before you start trading with actual funds.

Many brokers offer a demo platform with virtual money, often they are free, sometimes though you need to have chosen your broker and deposited a minimum amount before you can use it. Finding a free demo platform is an excellent place to start.

Robert has consulted for our website for five years and is a well-established member of the team. While he is passionate about the site, most of Robert’s time is focused on his current position as CEO of a professional coaching company.

7 Binary Options

When it comes to trading, binary options or otherwise, charts are one of the most common and useful tools that traders use to predict future price movements based on historical patterns. This form of analysis is known as technical analysis, and due to its immense popularity, most trading platforms come built-in with various technical analysis tools. In this article, we will be giving you a brief primer on the basic types of chart patterns you will see when trading binary options (or any kind of trading, really); note that this is not an ‘in-depth’ article (refer to our other articles for that) but just a quick introduction.

The 3 Tenets of Technical Analysis

First, you have to understand the 3 main tenets of technical analysis, which are:

  • Prices discount everything
  • Prices move in trends
  • History tends to repeat itself

The first tenet, prices discount everything, means that the price of an asset has taken all underlying factors that could affect its price into account. To put in another manner, technical analysis believes that all factors have been ‘priced-in’, meaning there is no need to analyze each factor separately and that the movement of the price is all that is needed to be analyzed.

The second tenet, prices move in trends, means that once a trend in a price movement has been established that the future price movement is more likely to be in the direction of the trend rather than against it.

The third tenet, history tends to repeat itself, means that price movements are repetitive in nature due to market psychology; meaning that players in the market are assumed to have the same reaction to certain events over time. This tenet is basically ‘using the past to predict the future’.

Technical vs. Fundamental Analysis

We will keep this part brief as this is not the focus of this article, but as a quick summary, fundamental analysis looks at fundamental economic factors such as the individual financial statements of securities (whereas in technical analysis, as mentioned above, does not look at fundamental factors). Further, technical analysis, being based on trends, is usually applied over much shorter time horizons, days, weeks or months whereas fundamental analysis looks at data over years.

The 2 Types of Patterns

Next, you need to know that regardless of the shape of the chart pattern, which we will elaborate on below, all chart patterns fall into 2 categories: continuation and reversal. A continuation pattern means that despite some minor price movements, the price movement will likely continue with the trend. Reversal patterns are the opposite, and it’s a pattern that indicates that previous trend is about to come to an end and reverse.

Basic Chart Patterns

Now that we’ve got that out of the way, let’s take a look at a few of the most common chart patterns that you will see when studying charts. They are: Head and Shoulders, Triangles, Pennants, and the basics on candlestick charts.

Head and Shoulders

No, this is not an anti-dandruff shampoo brand, but rather a common and highly reliable reversal pattern. Many traders who use technical analysis, or ‘chartists’ believe this pattern to be a good sign that an upward trend is about to reverse. As for how it got its name, check it out below:

Not shown in the chart above, is that prior to the first ‘shoulder’, there is a long upward trend; after the first ‘shoulder’ there is a price decrease, followed by a rebound to a higher point; the ‘head’ and then another decrease followed by a smaller rebound to the second ‘shoulder’ followed by another decline. Chartists interpret this pattern as a ‘battle’ between the bulls and the bears of the market and the two rebounds (the head and the right shoulder) show small market rallies of the bulls. Since the second rally of the bulls only reaches the level of the ‘shoulder’, this is an indication that the market’s momentum has swung in favor of the bears and that a continued downtrend is likely.

There is also an inverse head and shoulders pattern, which indicates the reversal of a downtrend. In this case, it shows that the bears attempt to rally but eventually the bulls prevail and the price reverses its initial downtrend.

Triangles and Pennants

Candlestick Patterns and Charts

Candlestick charts are a charting tool that is very popular in binary options trading for the main reason being that it reflects a much shorter time horizon. As we explained in the examples above, some other technical analysis patterns can take weeks or months to materialize, making them more suitable for longer term types of trading such as stock trading. In binary options however, with such short expiry times, shorter term charting patterns may be more effective and candlestick charts are well suited for this purpose. Let’s look at the basic candlestick and candlestick chart.

Basically each candlestick represents a certain time period; in the above example it represents a single day. Depending on the chart, a red or black candlestick body means the closing price was lower than the open and if it’s white or green it means the closing price was higher than opening price. The tops and bottoms of the candlestick body show the opening and closing price, with the higher one or top. Meaning in a black candlestick with a lower closing price, the top of the candlestick body shows the opening price and the bottom of the candlestick body shows the closing price. In a white candlestick it is the opposite; opening price at the bottom of the candlestick body and closing price at the top.

This means that the length of the candlestick body shows us the strength of either the buying pressure or selling pressure on an asset.

A long candlestick body means that there is a large difference between the opening and closing prices and vice versa for a short candlestick body. Thus, a long white candlestick body indicates strong buying pressure while a long black candlestick body indicates strong selling pressure.

Above and below the candlestick bodies are the wicks or shadows, and the tips of the wicks represent the highest and lowest prices of the period. What about the length of the shadows?

Well, the length of each shadow shows how close most of the period’s trading was done near the opening and closing prices. Long shadows means that a lot of trading happened at prices far away from the opening and close while short shadows show that most of the trading happened very close to the opening and closing prices.

This can be broken down further into the relative length of the upper and lower shadows. A long upper shadow with a short lower shadow indicates that buyers were dominating during the trading session and drove prices higher but eventually sellers forced down the price creating a large gulf between the top of the shadow and the bottom of the shadow. A long lower shadow and short upper shadow mean sellers dominated initially but buyers eventually drove prices back up.

What about when the length of the upper and lower shadows is equal? When such a scenario occurs with the addition of a short candlestick body, which is what is known as a ‘spinning top’.

As we mentioned above, a long and short shadow means that there was some sort of reversal during the trading period; if the shadows are of equal length, which is an indication of market indecision. The short body means that there was not much price movement between the opening and closing, and the equal length of the shadows show that both buyers and sellers exerted roughly equal pressure during the session. Spinning tops are however a good indicator of a reversal of a trend; if it was preceded by long white shadows, indicating strong buying pressure or long black shadows, indicating strong selling pressure, a spinning top will show that since the pressures are becoming equal, the trend is potentially reversing.

When the candlestick body is really, really, small, so much so that the candlestick looks more like a cross, this is called a ‘doji’. The length of the shadows can vary; both candlesticks below are dojis.

Dojis are again a sign of market indecision; while prices can move to various highs and lows during the session, eventually the close and open are relatively equal. The final result of the ‘battle’ between the bulls and bears is a draw.

What do dojis imply in the context of a trend? Again, similar to spinning tops, dojis are a sign that a previous trend (whether positive or negative) is about to end as buying and selling pressures equalize.

Let’s close off the article with the final candlestick pattern: the hammer and the hanging man. Both of these patterns look exactly the same and can have either black or white candlestick bodies; they are both also reversal patterns. What differentiates the two however is the trend that precedes them; the hammer forms after a downtrend while the hanging man forms after an uptrend.

The hammer indicates the reversal of a downward trend as the long bottom shadow indicates that the sellers really pushed the prices low but at the end of the day it finished strong. Similarly in the hanging man, which is a reversal of an upward trend, the low long shadow after the upward trend indicates that selling pressure is starting to materialize despite the fact that that prices still finished strong. Both the hammer and the hanging man are not ‘strong’ patterns and require further bullish or bearish confirmation; as we see in the chart above this confirmation is provided by a long white candlestick in the case of the hammer and the long black candlestick in the case of the hanging man.

Conclusion

Technical analysis is a whole field of study in and of itself and could fill out entire textbooks with information. This article is just an introduction to the basics of technical analysis, and more specifically, the portions of technical analysis that are most applicable to binary options trading, which focuses on much shorter time horizons.

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.

Live Binary Options Chart

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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.

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

Multicharts is a downloadable chart software that provides high-definition forex charts on 30 different currency pairs in partnership with TradingView. The charts also have a web-based version. Traders can utilize several time frames that span from one minute up to one month. Developed by MCFX, the MultiChart charting and trading platform is a robust package that even has a unique ODM chart trading feature that zeroes down on the exact price that a trader wants to execute his trade on, tags it and uses this information to remind the trader about the trade if there is a lag in time between signal generation and trade execution.

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.

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