Different types of financial analysis and their application to binary trading

Posted By Paul Williams on Nov 24, 2016 |


There is no kind of online trading that does not involve learning and effort. Although it is simple to learn and access, binary trading is no exception. No matter if you make decisions on your own, use binary option robot, it is necessary to know how to perform market analysis if you want to be a successful trader.

Why is financial analysis necessary?

Financial analysis is absolutely essential in any type of trading. It does not matter whether you trade on stock or Forex market, or trade some of these assets through binary options. What financial analysis enables you is to be aware of the changes in the market. It allows you to predict the market movements based on different factors. This further leads to understanding how the market works and making the correct decisions while trading.

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There are several types of analyses binary traders can use. Some of them are suitable for other trading types as well, like stock and Forex trading. Some of the most common types are technical analysis, fundamental analysis and quantitative analysis. Each of them has its benefits, drawbacks and applications, but all of them can be applied to binary trading to some extent.

Technical analysis

This is the most commonly used type of analysis for binary trading. It relies on the presumption that every movement of the market in the past is likely to repeat in the future. Technical analysts believe that the market movements repeat in cycles and form patterns, from which they can conclude the future market fluctuations. This analysis does not take into account any fundamental aspects of the market, but only deals with statistics.

It is most commonly used for day trading style, because it allows predicting short-term movements rather than the long-term ones. Since binary traders are often considered to be day traders, this is particularly applicable in this case.

Fundamental analysis

This type of analysis takes into account all the fundamental events in the market and society. It pays less attention on historical movements, but tries to predict the future movements based on other criteria. For example, if you want to predict the value of a certain company’s stocks, you will consider the current value of the company, the geopolitical situation in the country and the like.

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Fundamental analysis is not directly applicable to binary trading, since it predicts movements in much longer terms. However, it can provide the traders with substantial amount of knowledge about the market’s behavior and help them make better trading decisions if they start trading on long-terms.

Quantitative analysis

brokerQuantitative analysis presumes simple financial ratio calculations. In stock trading, for instance, this includes calculating earnings per share, discounted cash flow and the like. It is in a way similar to technical analysis, because it only deals with statistics. However, it can rarely be used on its own. What’s more, it is applicable mainly to trading stocks on binary platforms.

Binary traders combine this with technical analysis to get better insight into historical data, identify the patterns and try to predict the future movements. All in all, when all three methods are carefully combined, there is a high chance that you will achieve great success in binary trading.