Trading binary options is a highly sophisticated activity that requires precise prediction of the market forces for any significant gain to occur. Most binary options traders are familiar with technical analysis, which analyses underlying assets on the short term. But of utmost importance in binary options trading is Fundamental analysis. This is because the behavior of assets is influenced by long-term, external events in the larger world economic market. Traders who use a combination of fundamental and technical analyses have better chances of successful trades, as they consider internal and external factors on the short and long term before making their trading decisions.
In simple terms, Fundamental Analysis refers to the study of the effects of many economic variables on an asset to successfully predict the future price behavior of the asset. Fundamental analysis follows the pattern of micro and macroeconomic changes in economically significant countries in the world.
Fundamental analysis studies a wide range of economic and fundamental indicators. Some of the critical macroeconomic indicators include interest rates, inflations rates, GDP growth, and rate of employment. Depending on the type of assets, traders might need to study specific indicators that can affect the price behavior of the assets. Forex trading, for example, fluctuates according to changes in the Central Bank reserves of traded currencies and monetary policies of the government. For commodities such as coffee and oil, prices are affected by seasonal variations in demand and supply, weather, and armed conflict in the areas of production. Trading in stocks can be influenced by changes in the leadership of a particular company, mergers, dividend policy, and revenues and so on. Hearing good news about a company would push up its stocks, while a bad news plummets the stock prices. All these factors will have to be carefully analyzed when trading with fundamental analysis.
Data for fundamental analysis are available on the economic calendar of many binary option trading platforms. For example, a trader who wishes to trade forex pairs with fundamental analysis will follow the fluctuations in the forex reserves of both currencies’ Central Banks, as well as the interest rates and other macroeconomic policies of the countries. With this, the trader gets a clearer picture of how the currencies behave with changes in economic policies from their parent countries, and they plan their trading decisions to take advantage of these behaviors. When this is combined with the insights gained from technical analysis, the trader’s chances of winning trades get a considerable boost.
With fundamental analysis, your trading decisions are not only concerned with the present market behavior of an asset, but every other external factor that could impact the asset is also factored in, and this will increase the accuracy of your binary trading forecasts.
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