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Home» Binary Options School » Technical Analysis » Technical Analysis: What and Why?

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Technical Analysis: What and Why?

Written by: Sophie May

The beauty of binary options is that with only two choices, up or down, even if you take a random guess, you already have a 50% chance of being correct. Not a bad starting point. Yet any trader will testify that the more informed you are, the more money you stand to make.

Analysis of the financial markets can assist you as make that important decision between up and down. By conducting your own analysis, or using reliable trading signals from professional analysts, you should be aiming to trade in-the-money around 70% to 80% of the time.

Technical analysis is one of the two key methods used by financial analysts to evaluate the markets and predict price action in the future. This method of analysis involves the use of graphs, charts and statistics, all of which enable analysts to spot patterns. It is these mathematical and statistical patterns which can indicate future activity.

This brings us to the primary principle on which technical analysis stands: history tends to repeat itself. The sentiment is as true in market activity as in general life. The repetitive nature of price movements is generally attributed to the fact that market participants react consistently to similar market stimuli over time.

Furthermore the very price of any underlying asset follows trends. Once a trend has been established, future movement is more likely to move in the same direction than against it. Technical analysts monitor past price action to find the trading levels at which an established trend is likely to reverse or stabilize.

Technical analysts do not seek to measure an asset’s intrinsic value and do not actively account for market news, and country or business level reports. Those who specialize in fundamental analysis (the other key method of market analysis) often point this out as a weakness. However, for the technical analyst, all such news and market events are already reflected in the actual price of the underlying asset and so not need separate consideration. For example, a stock’s price already reflects everything that has affected the company in the past or could affect the company in the future, including all fundamental factors.

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