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Market Overview

To begin, let's look at three ways on how you would analyse and develop ideas for trading the market. There are three basic types of market analysis:

  1. Technical Analysis
  2. Fundamental Analysis
  3. Sentiment Analysis

Technical analysis

Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Unlike weather forecast, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is likely to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.

Fundamental analysis

Fundamental Analysis is dedicated to the investigation of economic, political, and social factors that have an effect on an underlying asset.The price of any asset is determined by supply and demand.

Asset prices are determined by supply and demand. If demand becomes higher than supply, prices begin to increase. If supply becomes higher, demand becomes lower and price start to decrease. Therefore, the subject of fundamental analysis is the investigation of which factors can have an influence on supply and demand and, in turn, on price which causes prices to change. Although there are a lot of such factors, all of them are well-known, as well as their possible effect on supply and demand.

Sentiment Analysis

Sentiment Analysis is a bit more complicated and subjective than Technical and Fundamental Analyses. Although Technical Analysis tells us that “prices include all available information” and that price is all what traders need to make a deal decision, things are not so simple. We will not debate now on whether price really reflects all available information or not, so let's just assume that it does. Nevertheless, this doesn’t mean that all traders' open positions in the same direction. Of course every trader sees the direction of the market, but almost everyone has their own explanation as to why it moves in a particular way.

But take a look at this situation from a different angle. Perhaps the market moves in this particular way (up or down), because it mirrors what all traders think about it. Each trader opens positions according to their own thoughts and opinions about the market and, in fact, all these positions create that substance that we call market sentiment. 

There are several arguments concerning what type of analysis is better. At OneTwoTrade, we do not believe that it is absolutely necessary to be well acquainted with all the different types of analyses and practical skills attached to them, although it is a practical idea. Many experts claim that it is imperative for all traders to be well acquainted with all three types of analysis. You can't really argue with that fact. The truth is that a lot of traders use a particular method over others and, in turn, use the other methods as support for their initial game plan. It's safe to assume that traders usually master one type of approach or analysis and have common knowledge of others. However, this common knowledge is absolutely necessary, because traders should have at least a general understanding of what is going on in the market. We would love to know that you have become a master in all three types of analysis, but we suggest for you to start with at least one of them. Later on, you can choose your preferred method and decide whether you need to master all three  approaches or just master one and familiarize yourself with the rest. 

Let's briefly discuss support and resistance.

Support

Support is the price level at which demand is thought to be strong enough to prevent price from declining further.

Resistance

Resistance is the price level at which demand is thought to be strong enough to prevent the price from rising further.

Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). "Supply" is synonymous with "bearish," "bears," and "selling." "Demand" is synonymous with "bullish," "bulls," and "buying." These terms are used interchangeably throughout these and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as "bulls" and "bears" slug it.

An Economic Calendar is used by the financial community to determine when major economic reports on items such as unemployment or housing data are scheduled to be released. Traders may shift the direction of the market as the release date approaches, especially if the report has the possibility of being bad.

Professional traders pay close attention to global events by using an Economic Calendar. By having the release schedule for each economic indicator, a trader can foresee when major movements will happen. The most influential events include interest rate, decisions, non-farm payroll numbers, changes in gross domestic product (GDP), Consumer Price Index (CPI), and Purchasing Manager's Index (PMI).

It is important to note that there are several free resources available online that traders can use to help them determine the date/time of future market-moving events. 

Generally speaking, the most active trading hours for traders begin at the London markets' opening time, at around 8:00 GMT, and end when the US markets close, at around 22:00 GMT. Peak market hours are during the London-US overlap, usually between 13:00 GMT to 16:00 GMT. These are the most liquid hours, which is when most traders are trading. If your intention is to do day trading, these are the key hours.

There are 3 major sessions each day in Forex markets. They are the London Sessions, the US Sessions, and the Asian Session.

The London Session

The London Session starts at around 8:00 GMT and winds down at around 16:00 GMT. The most active assets during these hours are the following currencies: EUR, GBP, and USD. You will also find a large volume of European stocks and indices. 

The US Session

The US Session starts at around 12:00 GMT and winds down at around 22:00 GMT. The most active assets during these hours are the following currencies: AUD, EUR, GBP, JPY, and USD. You will also find a large volume of American stocks and indices as well.

The Asian Session

The Asian Session is centered in Tokyo but includes many other countries and covers the hours of 23:00 GMT and 8:00 GMT. The most active assets during these hours are the following currencies: JPY, AUD, NZD,  and SGD. You will also find Asian stocks and indices at your disposal.

There are a lot of different types of charts that have an application in the real market. The most popular are:

  1. Line chart
  2. Bar chart
  3. Candlestick chart

Line chart

This is the simplest chart type; it looks like a simple line. There is time on the X-axis and price on the Y-axis, the line links the close price of each trading period.  By linking together close prices for each trading period, we can see the price behavior during some period of time.

Bar chart

In addition to showing a close price for a period like it was on the line chart, bar charts also show open prices for trading periods, as well as high and low prices. The assignment of X and Y axis are the same. In reading an OHLC bar, the tick on the left represents the opening price and the tick on the right represents the closing price. The vertical bar displays the extreme high and low price movement for a particular stock during the day. Don't get confused when looking at weekly OHLC charts: the only difference here is the time frame you are looking at. The same applies for monthly time frames. 

Candlestick chart

A candlestick chart is a style of bar-chart used primarily to describe price movements of a security, derivative, or currency over time.

It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns. They appear superficially similar to box plots, but are unrelated.

If you are a day trader, not only do binary options give you the opportunity to make a great deal of money with a small move in the market but they also give you an instrument to hedge currency positions.

The concept of hedging is the act of reducing the amount of risk that you currently have on your books. For example, if you had a long call position, you could reduce your delta risk by shorting the same underlying asset.  Traders hedge their positions when the risks are not in their favor, or when a piece of news is about to come out and the information will create some uncertainty which might create volatility within the market. So how can a trader use the binary options market to hedge some underlying risk? Let’s say a EUR currency trader wanted to hedge his long exposure to the EUR/USD right before a European Central Bank decision on interest rates.  The trader could purchase a below option for the period overlapping the central bank announcement with an amount that would allow him to make a percentage of the notional value of the EUR/USD position that is held.  If the announcement contained some information that caused the market to fall for a few hours (or even longer), the trader would be protected.

One of the many binary options tips to being successful is to have a well-planned strategy and of course to use winning technical strategies. This is essential if the account is to succeed. In today’s financial world, binary options trading is one of the easiest profitability schemes used by traders. Technical strategies are a great way for the trader to get into any position with high confidence and increased success rates.

Traders should make their own plans and strategies, and before beginning to trade, use One Two Trade's proven technical strategies that help to maximize success.

In the next chapter you will find a huge variety of strategies that are in use in the market and are a great way to make you a better trader. Begin to trade like a professional today.