How to Use Charts in Binary Option Trading

How to Use Charts in Binary Option Trading

Submitted by adil on Thu, 11/06/2014 - 07:55

Charts are the most basic tools to perform technical analysis in binary option trading. There are many types of charts with different applications and purposes. Charts represent data in visual form, usually a quantity is projected against a standard time period. This visual representation helps the traders to quickly determine the overall trend which greatly helps in planning the next trades.

The time period is usually scaled on the X-axis and the depending quantity on the Y-axis. In some chart services, you can reverse this preference with a single click.

Important properties of a chart:

There are three main features in a chart that are worth considering before using it for trading binary options:

Time scale: It is the time scale you can set on the chart to show relevant information. It is usually on the X-axis of the chart. You can view data from the last seconds to the last couple of years depending on the broker policies. Choose the time scale which is respective of the expiry times you will use for the binary option trading. People who use long term strategies usually trade on data scaled on hourly or daily basis while trader who like short term trading like to use time scales that show data in seconds or minutes at most.

If the time scale is not set properly, the trader will miss important information and start losing money on trades. For example, if the trader is checking the last 10 years’ data with a time period of one week, the opening and closing prices at the end of every week will be shown by a single point on the chart. This can be a lot of data to analyze for a new trader, but expert traders can use this trend to precisely predict the future prices.

Price scale: The price scale is usually the vertical (Y-axis) scale on a chart. The asset prices are represented on this scale. The values are represented and updated in such a way to produce a trending pattern so the trader can analyze something definite from the charts.

The concept is overall is simple, but there are some advanced price scale options that can complicate matters. The price scale can be either arithmetic (scalar) or logarithmic (exponential) depending upon the nature of price values. When the price values are relatively high and the changes are greatly varying, it is easier to use a logarithmic (exponential) chart to view the detailed trend. If the prices are not high, and the price variations are not big, the simple scalar charts can be easily used to analyze all the trends and patterns.