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What is technical analysis?

Technical analysis is the practice of using past price buttons to identify trend reversals at relatively early stage and using that information you can make profits off the markets. Technical analysts themselves admit that there is no technical tool to determine any magnitude to any price movement. The tools they use only identify the direction and this makes technical analysis the perfect tool for binary options traders.

 

Bollinger bands

Bollinger bands are lines plotted two standard deviations above and below a simple moving average. These bands have two major uses:

  • They provide a non-linear support and resistance levels.
  • They alert traders to volatility. The further apart the bands, the more volatile the price.

 

Relative Strength Index (RSI)

Relative strength index or RSI is the measure of recent gains and losses that show traders whether or not an asset has been overbought or oversold. RSI is measure from zero to a hundred and when the RSI of an asset breaks seventy, it is likely been overbought and is heading for price reversal. An RSI of thirty or less indicates that an asset has been undervalued recently and this is a good time to place an Up binary options trade.

Moving Average Convergence Divergence (MACD)

Moving Average Conversions Diversions or MACD is a combination of three exponential moving averages: the 26th day, the 12th day and the 9th day. In essence this combined data creates a signal which traders can use to place an Up or Down binary options trade. Technical analysts move quickly and they spot the early signs of a trend, wait for confirmation and ride the price line to make profits.

But how about the fundamentals?

While Bollinger Bands, RSI and MACD are excellent tools to allow you to enter trades at the best strike price it is suicide to ignore the fundamentals. No software can predict whether the head of the central bank will make a resignation. Only use technical analysis to refine and not define your trades. Technical analysis can give you an edge especially in the currency markets but be warned that no line or candlestick can predict a change in monetary policies. For that, you need to stick to the fundamentals.

 

 

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