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Table of Contents

Part 1 - Setting the Stage

1 Introduction

2 Market Forecasting with Binary Options

3 Understanding the Fundamental Concepts

4 Starting with Realistic Expectations

5 Avoiding Newbie Mistakes

Part 2 - Understanding the Options Environment

1 Binary Options Defined

2 Trading Terms

3 Expiry Times

4 Broker Flexibility

5 A Wide Variety of Option Expiry Times

6 Setting an Options Trade and Watching its Execution

Part 3 - Contract Considerations

1 Setting an Options Trade and Watching its Execution

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2 Capitalizing on the Advantages of Binary Options

3 How Binary Options Contracts Work

4 Trading Fees and Commissions

5 Asset Choices in Binary Options

6 Improving Costs

Part 4 - Contract Types and Risk Assessments

1 Additional Forms of Options Contracts

2 Optimizing Gains

3 American Style and European Style Options

4 Determining Option Values

5 Judging Risk Levels

6 Avoiding Binary Options Scams

7 Binary Options Trading Caters to a Wide Variety of Investors

Part 5 - Fundamental Trade Analysis

1 Methods of Analysis

2 Fundamental Analysis Defined

3 Looking for Investment Opportunities in Over-Priced or Under-Priced Assets

4 Fundamental Analysis in Stocks

5 Fundamental Analysis of Commodities

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6 Fundamental Analysis of Currencies

Part 6 - Technical Trade Analysis

1 Time Frames in Technical Analysis

2 Remembering Context

3 Common Tools for Chart Analysis

4 Support and Resistance

5 Examples of Support

6 Examples of Resistance

7 Trends

8 Uptrend Examples

9 Downtrend Examples

Part 7 - Trade Execution

1 Putting it All Together

2 Trading with Support and Resistance

3 Trading with Trends

4 Trading with Fundamental Analysis

5 Moving on To Advanced Analysis

Part 1 - Setting the Stage


Introduction

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Over the last decade the Internet has become a much more
commonplace extension in the lives of everyday people, and this
phenomenon has not been lost on the financial markets. Recent years
have seen significant increases in the number of individual investors
flowing into the online trading community and emerging trends in binary
options are a clear example of this.

Most of the allure come from the fact that trading in the financial
markets can be an exciting and highly profitable experience, which has
become accessible to anyone with a computer and a desire to learn the
about the industry. While there are many available choices for people
looking to get into trading in the financial (futures, bonds, or spot forex, for
example), one of the easiest and most rewarding choices can be seen the
binary options markets as the trading process in these instruments is easy
to understand and does not take much work or research to get started.

This does not mean, however that no research should be done


before trades are placed with real money and here we will look at some of
the essential market factors that should be understood before any of your
hard-earned money is put at risk in an options trade.

Market Forecasting with Binary Options

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In its most basic sense, binary options trading requires to forecast the
directional value of a specific asset. That is to say, investors must have
some idea of whether prices will go up or down over a certain period of
time. It really is that simple. But at the same time, market forecasts need
to be conducted in order to ensure long term profitability and consistent
trading results.

Understanding the Fundamental Concepts

In order to accomplish this, investors must have a firm understanding


of the fundamental concepts that rule the financial world. This might seem
like a monumental task but with a little time and effort, these factors can be
deconstructed in a way that makes sense and when the strategies you
have learned are applied on a consistent basis, long term profitability can
be achieved.

In this eBook, Binary Options for Beginners, we will walk you through
the process of trade analysis and market forecasting so that you can have
a firm foundation when you begin trading with binary options.

Starting with Realistic Expectations

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But before we begin, it is important to have a realistic set of


expectations in place, so that potentially unfortunate surprises do not seem
overly discouraging. With the advent of Internet trading, it has never been
easier to place a binary options trade. But this does not mean that the
process comes without risk. An analogy can be drawn to Texas Hold’em,
which is a game that is easy learn but difficult to master.

Trading with binary options is similar in many ways and can appeal to
many people for the same reasons. Binary options are simple to trade.
Anyone can enter into this business and make long term gains. But we
must always remember that trading in the financial markets in not
gambling, and that there is always the possibility to lose money if we are
not well prepared and work to design a solid trading plan.

Avoiding Newbie Mistakes

Many newbies enter into financial markets trading without the


necessary preparation, thinking that trades can be placed in the same way
a lottery ticket can be bought and that wealth magically flow into their
trading accounts. Unfortunately, this is not the reality. Anything worthwhile
in life takes effort and some degree of hard work, and trading in the binary
options markets is not exception.

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But with a little time and research, investors can implement the well-
established strategies that have been time tested by seasoned traders in
order to create reliable gains over the long term. The aim of this eBook is
to help you understand these strategies, achieving long term success in
the binary options world.

Part 2 - Understanding the Options Environment


Binary Options Defined

No new investor should begin trading without a firm understanding of


what a binary option is, and what it is not. In the financial markets, a

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binary option is based on one of two outcomes - the price of an asset goes
up, or it goes down. Before any trades are placed, investors must have
some idea of what will be seen in the future value of an asset. Will the
price of Gold go up or down? Will the S&P 500 increase or decrease in
value. This logic applies to all types of assets (stocks, currencies,
commodities, etc.). The central factor the investor must focus on is the
future direction of an asset’s value.

For this reason, there are no huge trades - and none that are “semi-
profitable.” Trading in binary options is an all or nothing game. The profit
and loss is set before the trade is executed, as both sides agree on the
profit and loss parameters before the options contract is executed.

Because of this simplicity, binary options trades provide investors


with a form of trading that is highly accessible, given the straightforward
trading structure. Trading with binary options differs from other types of
investments in that the total monetary risks (and rewards) are clear -
upfront. Everything is dependant on whether or not your initial value
forecast is correct. Values go up or down. You win the trade or you lose
the trade.

Trading Terms

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Now that we understand the basic mechanics of the binary options


trade, we should understand some of the common terminology that is used
when people reference these topics. When entering into the binary options
world, the first terms you are likely to hear are CALL and PUT. The easiest
way to visualize what these terms mean is to imagine “calling in” an asset
or “putting it away.” Buying a CALL options means that the investor
expects the price of an asset to rise in the future. Buying a PUT option
means that the investor believes the price of that asset will fall in the future.

While there are some variations on these trading types (discussed in


the accompanying Advanced eBook), these are the basic and most
common terms you will hear when trading with binary options. Next we will
look at the time periods for which these trades will be exercise, as this is
the second most important aspect of the binary options trade. One critical
aspect that differentiates options trading from more traditional investments
is the fact that time periods are also established right from the beginning of
the investment. If, for example, you choose to buy a stock, there is no
requirement to sell that stock at any specific point in time. But this is not
the case for options.

Expiry Times

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Most people outside of the financial trading community understand


how traders can earn profits when buying a stock. The stock is bought at
one price, that stock is held for an indeterminate amount of time and then
the stock is sold back to the broker. If the stock rose in value during the
holding period, the investor earns money.

If the stock falls in value during this period, the investor loses money.
But here, there is no person or regulatory body that demands the stock be
sold back within a certain period of time. The actions of buying and selling
the stock are determined only by the investor - with no requirements made
in terms of holding periods. In binary options trading, this is not the case.

The term “expiration” or expiry date in the binary options market


refers to the period when a trade will reach completion. If I enter into a 1-
week options contract (either a CALL or a PUT), that options trade will end
one week after it is opened. Whether or not my trade is profitable will
depend on the accuracy of my original forecast and the directional
movement of my asset’s value during the period I held the options trade. If
I entered into a one-day CALL option in Gold, and the value of Gold was
higher at the end of the day, I would profit on the trade.

Broker Flexibility

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But since all traders do not operate on the same scheduled, brokers
have increased the flexibility of expiry times that can be attached to each
options trade. For example, traders looking to be in and out of a position
quickly can choose option times that range from 60 seconds to one day.
Medium traders might select option times that range form one day to one
week, while long term traders will likely choose expiration times that range
from one week to one month.

A Wide Variety of Option Expiry Times

There is a wide variety of time frames that can be used for options
trades. Shorter term time frames include 1-minute to 1-hour options, while
longer term time frames can include options trades that are based on
changes during a weekly or monthly period. Experienced traders
approach short and long term time frames in different ways but what is
important to remember at this stage is that each options contract will have
a set period of time that is relevant to each position.

Whether or not a trade is successful will depend on the price activity


that is seen in the market during this period. As long as your primary
direction is correct when prices reach the expiry date, you will earn money.
This is true if prices have moved in your favor even if this is the case by
only a fraction of one percent.

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Part 3 - Contract Considerations


Setting an Options Trade and Watching its Execution

The first part of setting an options trade is selecting an asset. This


might seem obvious and self-explanatory but traders with experience know
that this is a process that requires care and attention. Selecting the wrong
asset at the wrong time means that you will be in a trade that is not
positioned to capitalize on the prevailing market trends. There will always
be assets that have more significant moves in specific market
environments and investors must understand how certain assets tend to
perform on specific occasions.

If you do not understand the forces that move individual asset


classes, it will be very difficult (if not impossible) to successfully trade
binary options on a consistent basis. Once you know the asset you want
to trade and the expiry time you wish to select, the next step in the process
in to determine how much capital you are looking to risk in your trade.
Generally, traders will risk more money on trades that are more likely to
result in a successful gain. That is to say, higher probability trades allow
investors to risk more when compared to trades that are based on lower
probability scenarios.

But while determining your risk might seem difficult, the actuality is
that the process is almost totally automated through your trading station.

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Once you select your asset, expiry time and trade size, you will
immediately see how much your trade can win or lose before you commit
to the position. Next, you simply hit the “buy” button on your trading station
and watch the trade until its expiration to see if the outcome is successful.

Capitalizing on the Advantages of Binary Options

Here, we can see one of the primary advantages of binary options


trading: You will always know exactly how much money you stand to win
or lose before the trade is placed. This is not the case in other forms of
investment. If for example, you buy a stock, there is always the possibility
that the company could go completely bankrupt and the entire value of
your investment could be lost. With binary options, this is not possible. In
the worst case scenario, prices will not move in the direction that was
originally forecast but in these situations, all you will pay is the cost of the
contract.

How Binary Options Contracts Work

Since binary options allow you to base trades in the direction of an


asset’s price movement, there will be no differences on the degree to
which prices move in your chosen direction. This essentially means that
the trade will be a winner if it moves 1 point or 1,000 points in your chosen
direction. You do not need trading forecasts that are massively accurate,

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you simply need to choose the right direction. Your monetary gains will be
the same regardless of the total magnitude of the individual move.

To calculate your potential returns, you must look at the “return rate”
in your trading station, which will often be expressed as a percentage. So,
for example, if your return rate is 80%, you will pay $100 in order to receive
a total return of $180 in your original trading forecasts are correct. In the
alternative scenario (assuming your options direction forecast is incorrect)
you loss for the trade will be $100.

There are, however, many examples of options brokers that offer


rebates on losing trades (which can be as high as 15-20%) and this can
help to make a large difference in your trading account if markets turn in
the wrong direction.

Trading Fees and Commissions

Another significant benefit of options trading can be seen in the fact


that there are no additional fees or commissions that must be paid by
investors in order to gain access to the markets. Also, there are no spread
costs (which are typical in the forex trading markets) and this allows
traders to help maximize profits over the long term. Since there are no
hidden costs, traders will always know exactly what they stand to win or

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lose in each trade, allowing for heightened preparation before any money
is put at risk.

So, as we can see, binary options brokers have really simplified the
entire process for traders, making things much easier for new traders or
those that will be investing on an individual basis (without the help of large
financial institutions). In addition to this, these brokers have been able to
make substantial benefit offerings to their clients, which is a welcome
addition to what is offered viewed to be a rigid industry.

Asset Choices in Binary Options

Now that we understand how binary options work, we will next look at
the available asset choices that can be traded using binary options. This is
important because nearly every type of asset can be traded in this realm.
Common choices include stocks that are traded publicly. Examples can be
seen in stocks like Apple, Facebook, IBM, or Microsoft but also in the
broader indices that house these individual stocks. Examples in this case
include assets like the S&P 500, the DAX in Germany, the FTSE 100 in
England or the CAC index in France.

But the world of binary options expands into other areas, as well, with
commodities and currencies also showing in some of the most popular
cases. Examples of commodities that can be traded include items like

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Gold, Oil, Sugar, or Coffee, while examples of currencies include the Euro,
US Dollar, British Pound, Japanese Yen, or Swiss Franc. Many brokers
will also take suggestions for new assets to trade if your chosen product is
not currently available.

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Part 4 - Contract Types and Risk Assessments

But perhaps the primary benefit of trading these assets in the form of
binary options is the fact that investors can gain exposure to the price
moves without actually taking physical ownership of the asset. This can
help trader to avoid storage fees and additional service charges. This
makes it much cheaper to trade binary options (relative to other forms of
investment), which, over the long term, will help to improve your profits.

Additional Forms of Options Contracts

In addition to CALLS and PUTS, there are other types of binary


options contracts that allow investors to tailor their trades in a more flexible
fashion. Some examples can be found below:

● The One Touch Option - The One Touch Option allows traders set a
specific price level (for a stock, commodity, currency, or other
asset)and receive a payout if that level is reached.
● The No-Touch Option - No Touch options allow the trader to profit if
an asset’s price fails to reach a specific level before option expiry. In

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these cases, payouts tend to be smaller when the trigger price is


farther away from the spot rate.
● The Double One Touch Option - Here, the trader sets two trigger
prices and payouts will be given if one of these price levels is hit
before the option expiry time. These options tend to work best in
markets characterized by high volatility (many significant ups and
downs in price activity).
● The Double No-Touch Option - The Double No-Touch Option is the
opposite scenario, and payouts are given if neither price trigger is
touched. These options tend to work best in markets with limited
volatility (lacking significant price moves).

Optimizing Gains

Investors that are able to successfully trade the options markets will
use the flexibility in contract types that is made available by brokers and
use different types of binary options depending on the underlying
conditions that are present in the market. These different option types will
allow you to minimize risks and maximize gains, so in order to optimize
your profit potential, it is very important to understand the price behavior
that is likely to be seen in a given market and then to choose the binary
options form that will best correspond to the market activity that is
predicted.

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American Style and European Style Options

Another way the financial community classifies binary options formats


can be seen in European style or American style contract types. Binary
options classified in the American style might be exercised at the exact
moment a specific strike price is reached.
Conversely, European style binary options can only be exercised
once the contract expiration date is reached. In these cases, the current
price of the security is looked at relative to the predetermined strike price,
and this is how payouts will be determined.
This can present some significant differences in specific trades as
payouts will not be given if prices do not meet the correct criteria at the
time of contract expiration. These is the case even if prices had actually
met the predetermined criteria at some stage before the expiration date.
For this reason, American style options will be viewed as preferable by
investors seeking enhanced levels of flexibility in pricing requirements.

Determining Option Values

Before any trades are placed in these markets, investors should have
some idea of how options are valued. These valuations include factors

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such as current market prices (of the underlying asset), market volatility,
intrinsic value (the amount of money the option will be worth if immediately
exercised and converted to the underlying asset), expiry time, interest
rates and dividends (for certain asset types). Using these factors, there
are several pricing models which can be used to determine fair values in
the options markets.
The most commonly used is the Black-Scholes model, which
assumes that the price of an asset flows in relation to constant price
variation seen in the market, the time value of money, the strike price of
the option and the expiry time. Essentially, the main drivers in options
pricing are seen in these economic factors. As asset prices rise, prices of
CALL options tend to rise (while costs of PUT options fall). Conversely,
when asset prices drop, the reverse scenario is seen in the pricing of CALL
and PUT options.

Judging Risk Levels

As always, it is important to judge your risk levels when constructing


any trade. Essentially, this requires an understanding of which market
factors might cause your trade to unfold in an unfavorable direction.
Certain macroeconomic factors might change and negative influence your
original forecasts in ways that prevent your trade from paying out.

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Additionally, there are certain technical scenarios (such as a major


run of stop losses or declines in market volumes) that can lead prices to
perform in an erratic fashion. For these reasons, experienced traders tend
to advise against trades that are placed during periods of increased
uncertainty in the broader markets.

Avoiding Binary Options Scams

New traders should always be weary of advertised trading systems


that promise a “quick path to riches” when trading binary options.
Unfortunately, there are many examples of trading scams that prey upon
the lack of experience that is seen with many new investors. Greed is a
natural impulse in human nature and when trading systems offer the
possibility of easy wealth (with little or no real work involved), it can be
easy to believe the hype.

But trading in the financial markets is really no different from any


other business, and hard work and dedication are requirements for
success. While this might seem daunting, there really should be some
scope here for optimism because this should dispel some of the
“mysticism” that surrounds the binary options (and most financial) markets.

Binary Options Trading Caters to a Wide Variety of Investors

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An exciting aspect of binary options trading is that markets are now


accessible to anyone with an active interest. In order to place trades, you
do not need years of experience or connection with major market players
in the industry. But at the same time, it should be understood that trading
with binary options is not a get rich quick scheme, and some level of
research must be conducted before trades are placed.

Trades can be completed as quickly as 60 seconds after they are


opened, and this can blind new investors into thinking that massive wealth
can be achieved in very short periods of time. This, of course, is the wrong
approach, as there are substantial risks involved when large positions are
opened.

The right mindset for binary options trades requires a willingness to


develop a trading plan, daily trade analysis and market research. As long
as you are willing to spend the time focusing on these areas, you will be
able to achieve your goals and to trade these market successfully.

In the following sections we will look at some of the specific areas of


the financial markets that must be understood before real trades in binary
options should be placed. These topics will include the various ways
investors will analyze economic factors that are influencing the financial
markets and the different strategies that are used to interpret chart graphs.

Part 5 - Fundamental Trade Analysis

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At this stage, you are probably asking yourself how analysts and
investors make their forecasts and predictions for which direction a stock
(or other asset) will likely travel in the future. Of course, this is one of the
most critical aspects of any trade and without the ability to determine it
these forms of analysis, it will be impossible to consistently trade in a
successful manner over the longer term.

So, when looking at the most commonplace forms of investment


analysis, two clear categories come to the forefront: Fundamental Analysis
and Technical Analysis. And while most investors tend to side with one
strategy or another when conducting their own market research, there is
still a significant percentage of the market community that draws from both
methods when looking to construct profitable trading plans.

In this section, we will first look to outline the important factors of the
more traditional method of investment analysis, which would be seen in
Fundamental Analysis.

Fundamental Analysis Defined

When looking at a history of investment strategies, fundamental


analysis is often thought of as the cornerstone of investment strategy. In
fact, many investors would argue that any trade that is not based on

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fundamental analysis is not a real investment. But with such a broad topic,
it can seem difficult to get a handle on what this form of analysis aims to
achieve, exactly.

Put simply, fundamental analysis is the study of underlying economic


factors that will have an influence on the current value of an asset. To be
sure, the process of fundamental can differ widely, depending on which
asset class you are buying or selling at the moment. When dealing with
stocks, a great deal of attention will be placed on a company’s balance
sheet, growth prospects, earnings expectations, industry competition or
upcoming product line.

When dealing with commodities, investors will tend to focus on


supply and demand issues that will influence the purchase price over a
given period. For example, if oil production is expected to drop over the
next month, investors will be looking to buy that commodity, as reduced
supply levels tend to lead to greater prices.

Other markets, such as the currency (forex) market, traders tend to


focus on the macroeconomic data of a specific country. Key factors in
these areas include Gross Domestic Product (GDP), inflation levels,
interest rates, jobs creation, national retail sales and manufacturing
productivity. In currency markets, investors deal with some of the broadest
sets of data because prices will be determined by what happens on a
national level - not by what happens in an individual company or in an
individual commodity material.

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Looking for Investment Opportunities in Over-Priced or Under-Priced


Assets

Since fundamental analysis is an investment technique that looks to


determine the appropriate value for a specific asset, the main task of a
fundamental analyst is to accurately assess the economic well-being of a
financial asset and then to relate that quality to the pricing levels that are
currently seen in the market. When dealing with specific trades, investors
will always want to find inconsistencies in market valuations.

If something is trading in the markets at $1 when it should be trading


at $2, a buying opportunity is present and investors should be considering
call options. At the same time, when an asset is actively trading at $2
when a more appropriate value could logically be established at $1, a
selling opportunity is in place. In these cases, a put option should be
considered as the market has fallen too far in the wrong direction.

Fundamental Analysis in Stocks

The first thing to remember when attempting to conduct fundamental


analysis of an asset (in order to determine its appropriate value) is that not
all assets are influenced by the same factors. Because of this, investors
will need a firm understanding of the areas to watch depending on which

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asset is being traded through binary options. In the following sections we


will look at the various pieces of information that tend to be most important
for fundamental analysis in stocks, commodities and in currencies trades.

First, we look at the most common asset class: stock shares. Here,
investors will be focusing on economics at the micro level, as the individual
characteristics of a specific company will be the primary area of importance
for options traders. Specifically, here is a list of factors that must be
researched before stock options trades are placed:

● Review of the company’s balance sheet: Is the company saddled


with excessive debt? Is there enough excess cash to keep the
company expanding? Are profits being distributed in ways that will
keep the company moving forward?
● Growth prospects: What are the company’s plans for expansion?
Are these plans attainable? Will they help drive profits going
forward?
● Earnings expectations: What does the market expect for future
company profits? Price movements are often generated by positive
or negative surprises in this area.
● Industry competition: Is the company a part of a heavily saturated
industry? How does the company fare relative to its industry
competitors? Which company in the industry has the most
sustainable plans moving forward?

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● Upcoming product releases: What does this company offer to the


public? Are people interested in new product releases? How well
known are these projects? Are product releases being properly
advertised?

Fundamental Analysis of Commodities

In commodities markets, many of the above factors are largely


irrelevant, because there is no single company that has a complete
monopoly on any company. Because of this, investors tend to focus on
different market aspects, such as supply and demand issues, as these will
take on a high level of importance when markets are actively trading and
determining fair market values.
In many ways, fundamental analysis in the commodities markets is
much simpler than what is seen in stocks, because what investors tend to
watch are issues that are widely available but not specific to individual
companies. For example, fundamental analysis of a commodity can be
seen if oil production is expected to drop over the next month.
In a case like this, investors will be looking to buy that commodity,
because supply levels will be reduced. Reduced supply levels tend to lead
to greater prices, as there is an equal number of people looking to buy a
smaller number of available assets. This would be a positive scenario for a
commodity (time to buy CALL options). Of course, increases in supply

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would lead to the reverse with prices likely to drop and investors looking to
purchases new PUT options.

Fundamental Analysis of Currencies

When dealing with binary options in currencies, the playing field is


once again altered. Here, traders tend to focus on the macroeconomic
data of a specific country, so that its overall economic well-being can be
determined. Key factors include data pieces such as the following:

● National GDP

● Annual inflation levels

● Outlook on interest rates

● Monthly jobs creation

● Retail sales activity

● Manufacturing productivity

To be sure, fundamental analysis in the currency markets involves


researching the broadest sets of data, which is determined by reports
showing activity on a national level. While some suggest that it is difficult
or impossible to accurately assess the economic health of an entire
country, there is little doubt amongst experienced traders that these

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markets tend to move (sometimes in a highly extreme fashion) when


pieces of data, such as the ones listed above, are released to the public.
Because of this, areas like annual GDP, inflation at the consumer
level, interest rate and interest rate outlooks, jobs numbers, retail sales,
and manufacturing productivity tend to be viewed as the cornerstone for
the fundamental analysis of a country.
This analysis is the first step in the process of assessing the
appropriate value for the currency of that country, and many trades can be
placed once this information in made public.

Technical Analysis

Technical Analysis is an area of the financial markets that has gained


a great deal of popularity in recent years. In many cases, new investors
are skeptical when they first hear about price chart, thinking that it is akin
to something like “financial alchemy.” But the reality is that technical chart
analysis is an integral part of trading in the financial markets and there is a
substantial majority of successful binary options traders that use this type
of analysis in some form or another.

Here, we will look at some factors which explain what technical price
analysis is, and what it is not. Only then will binary options traders be able
to tame this markets approach and use it to achieve gains when real

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trades are placed. Below is a list of some of the central aspects of the
discipline:

● Study of historical price activity (based on chart readings)

● Readings can vary widely depending on chosen time frame


● Identity of underlying asset is not taken into consideration
● Good for selecting trade direction and entry levels
● Many newcomers skeptical, but still widely used

Now that we understand that, in essence, technical analysis is the study of


historical price activity which is based on chart readings, we will have a
look at some of these charts in order to get a more visual representation of
the discipline.

Part 6 - Technical Trade Analysis


Time Frames in Technical Analysis

The first critical aspect of the discipline comes with the understanding
that price activity is always viewed in terms of its temporal context, that is,

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its time frame. Here, we will look at some different chart values (using
similar assets) to see how price can behave in different ways, depending
on this context.
Here is a 5 minute chart, showing recent price changes in silver. The
black bars in the chart indicate that prices moved downward during the 5
minute period while the white bars indicate that prices moved up during
that specific 5 minute period.

What do you notice in the chart above? Are prices rising or falling during
this period?
It should be clear that prices are lower at the end of they chart than
they were at the beginning, so, from this chart, we can see that prices are
showing declines and downward momentum. But what does that really tell

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us about this asset? Should be buying CALLS or PUTS for silver based on
this information?
At first, we might think PUTS are a better choice, given that prices
are declining. But first, let’s take a look at some other chart examples for
the same asset.

Below is a 1 hour chart in Silver:

What can we see looking at this chart? Prices end the period almost
exactly where they began, giving us a much more uncertain picture. Let’s
talk a look at an even longer time frame and try to get a sense of the
bigger picture.

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Below is a weekly chart in Silver:

Now, of course, here we can see silver in a very different light, with prices
increasing rapidly since the end of 2006 (seen at the beginning of the
chart). But with all of this seemingly conflicting information, how could we
possibly construct a trade?

Remembering Context

At this stage, we will hold off on specific trading plans. Here the main
idea is simply to understand that context matters and that what might
appear to be the reality from one perspective might change very quickly

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when looking at it from another. Another important point to remember


when looking at these three chart examples is that the 5 minute chart only
shows us silver prices over the previous half-day.

The one hour chart shows us silver prices over roughly 3 weeks and
the weekly chart shows us prices in silver over the previous 4 years. So,
overall direction in these examples gives us three different scenarios even
though we are dealing with the exact same asset. But while this might
seem discouraging, factors like this will not prevent us from constructing
high probability trades.

Common Tools for Chart Analysis

Next, we will look at some common terms and tools that are used by
practitioners of technical analysis to get a better sense of the way price
activity is commonly viewed. Here, we will define some of the foundational
aspects of technical analysis so that we can explain how trades can be
constructed in the final sections. The key terms we will be covering on the
following sections include Support and Resistance, Up Trends, Down
Trends - and all of these will prove vital for placing trade entries in the final
sections.

Support and Resistance

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The first critical terms for understanding the basics of technical


analysis are “Support” and “Resistance.” These terms are used by
technical traders on a daily basis, so understanding what these mean will
be vital for charting analysis.

Examples of Support

First, “support” is thought of as an area where buyers have previously


stepped into the market in order to raise the value of an asset. The term
applies to price activity in all types of assets (stocks, commodities,
currencies, etc) and in the following charts we will look for examples of
support for each of these categories.

Below are examples of support (shown in blue lines) in a chart showing the
S&P 500:

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These blue lines show areas where buyers have helped propel market
prices higher. Below is a similar example in the EUR/USD currency pair:

Finally, so that we can see that the term applies to all asset classes, we
will see similar examples of support on the commodity of oil:

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Examples of Resistance

Conversely, “resistance” is thought of as an area where sellers have


previously stepped into the market in order to decrease the value of an
asset. The term also applies to price activity in all types of assets and in
the following charts we will look for examples of resistance for each of
these categories.

Below are examples of resistance (again shown in blue lines) in a chart


showing the S&P 500:

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These blue lines show areas where sellers have helped push down (or
resist) market prices. Below is a similar example in the EUR/USD currency
pair:

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Finally, an example of resistance areas shown in an oil chart:

As a final point, it should be remembered that support and resistance


levels can be found on any time frame and for any type of asset.

The main point you will need to remember is that there are previous
pricing areas where buyers or sellers entered the market, which creates an
increased possibility that prices will exhibit the same behavior (either rising
or falling) if prices reaches those areas again in the future.

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Trends

Next, we will look at examples of trends. These come in three forms:


upward, downward and sideways. When looking at trends, however, time
frame tends to take on a greater level of importance, so in each asset
example, we will look at trend activity from specific time perspectives and
make note of those time intervals used.

Uptrend Examples

Typically, “uptrends” are defined as price activity that shows a series


of higher price highs along with a series of higher price lows. In these
cases, highs and lows can also be referred to as support (price lows) and

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resistance (price highs). Here is an example of an uptrend in the price of


oil, with each price interval showing a span of 4 hours:

Next, we will show an example of an uptrend in the EUR/USD, also using a


4 hour chart:

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Finally, using a stock market example,we will look at an uptrend in the S&P
500, this time from a daily perspective:

So, when looking for uptrends, the main point to remember is that they can
be seen on any time frame or in any asset class. The most important
requirement is that higher highs in price are visible along with higher lows.

Downtrend Examples

Alternatively, “downtrends” are defined as price activity that shows a


series of lower price highs (resistance) along with a series of lower price

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lows (support). Here is an example of an uptrend in the price of oil, shown


on a daily chart (each price interval is equal to 1 day):

Next, an example of a downtrend in the USD/JPY currency pair, using a 4


hour time frame:

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Last, we see an example of a downtrend in stocks - with an hourly chart of


the Nikkei 225 index:

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In each of these cases, traders should be looking to identify the general


trajectory that prices are following. This will help us in the final sections
when we are looking to turn the trading odds in our favor.

Trade Using the Broader Picture

These trend examples will show traders ways of determining the


general direction for their trades. Are prices showing positive momentum
or negative momentum? When we can see clearly highs and lower lows in
prices, we will have a greater chance of implementing a successful trade if
we follow the momentum that is already in place.

Looking at trend requirements will give you key information as a


binary options trader because you main job will be to determine whether
prices will rise or fall in the future. Once you are able to look at these
markets from a broader perspective, you will be able to make accurate
price forecasts that reflect the way prices are likely to travel in the future.

Since binary options trades are positive and negative in nature


(upward or downward price movements), this is essentially all you will need
in order to make informed trading decisions.

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Part 7 - Trade Execution

In the final sections of this ebook, we will look to tie all of this
information together and use everything we have learned to execute binary
options trades in the market. At this stage, the most important thing to do
is to take a step back and try to get a sense of the bigger picture.

Think about what binary options traders are trying to determine when
their analysis (be it technical or fundamental in nature) is conducted. Then
think about the information (price charts and recent economic data) that is
available to you as a trader. All of the information you will need to make
profitable trades is contained right here.

In the final sections, we will look at different aspects of trade analysis


and then show chart examples of how this analysis would have unfolded in
real time.

Trading with Support and Resistance

As we said previously, support and resistance levels are historical


areas shown on a chart which represent times when investors have
stepped in to either push down the price of an asset (resistance) or push
up the price of the asset (support). This is no different from what a

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manager at a supermarket does when deciding whether to raise or lower


prices of items in the store.

If this store manager wants customers to buy apples, for example, he


will set prices at a level that has attracted customers to this product in the
past. In the same way, we expect prices in binary options to rise from
these levels, based on this precedent and this would mean that options
traders would look to establish CALL options when these support levels
are seen.

Below is an example of a CALL option trading set up in the S&P 500


using support levels:

In this case, we are looking at a 4 hour chart in the S&P 500. The first
green arrow shows that prices have found willing buyers at the 1320 level
in the past (creating our support level). Prices rallied here the first time,
and as prices fall back to this level once again, technical traders will look to
initiate CALL options given the probability that prices will move higher as

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they did in the past. Since we are using a 4 hour price chart, we will move
down one time level (to an hourly time frame) to initiate our trade.

In essence, this means that we will be taking a 1 hour CALL option in


the S&P 500 using a strike price of 1320. Let’s see how this trade
unfolded:

With binary options in the S&P 500 typically paying out 80%, a $100
investment in this trade would have created gains of $80 in just one hour.

Next, we will look at the reverse scenario, with trades using a


resistance area as a basis for a PUT set up (given that we expect prices to
fall after hitting resistance. This trading setup for PUT options in the
EUR/USD currency pair uses resistance levels found in an hourly chart,
with the focus placed on 1.3070:

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Trading with Trends

Trading with trends is a slightly different form of price analysis. Here,


traders will be looking to determine where prices are likely to head in terms
of direction (rather than a specific buy or sell level). As we said previously,
uptrends are characterized by higher highs and higher lows in prices and
in these cases, CALL options are much more likely to create profits
because the underlying market direction is positive.

Here is an example, shown in a 1 hour chart in Oil, where prices


showed the requirements for an uptrend, giving us a signal to begin trading
CALL options. In this case, we drop one level (from the 1 hour time frame
to the 30 minute options contract) to initiate new positions:

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In this case, the higher highs and higher lows led an a 30 minute CALL in
oil. Let’s see how prices unfold as time moves forward:

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In the example above, we were able to identify that the trends in oil were
positive and likely to move higher in the future. This rationale was used as
the basis for 30 minute CALL options, which unfolded in a favorable
direction and created profits, in a short 30 minute span of time.

In the next example, we will look at the reverse scenario, using a


clearly defined downtrend in the Nikkei 225 stock index as a means for
entering into PUT options. First, we must identify the trend itself:

With the stock index downtrend now clearly defined, we will look for
entry levels for our PUT option. In this case, we will use the latest high,
seen in the 8635 area on the chart, as an place to enter into out PUT
option. In addition to this, we would have the benefit of entering into our

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PUT option at a higher level, increasing the probability that prices will fall in
the future (prices cannot stay at elevated levels for very long).

Here, we will be looking for the latest high in a downtrend to begin


our PUT option in the Nikkei 225. We know that the overall momentum
(downward) is on our side, and this helps to turn the odds in our favor for
the trade. We are looking at a 1 hour chart, so we will drop down to a 30
minute options expiry in order to benefit from the larger momentum of the
trend.

Here is a visual representation of the trade entry:

Since we know that the odds are in favor for the trade (given the downside
momentum and the excellent price entry), let’s now look at how price
activity would have unfolded in the trade:

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As we can see, prices in the Nikkei 225 continued to move downward,


which is not surprising given that the downtrend was so clear and that all of
the market’s momentum favored our trade decision for a PUT option.

When we are making trades in the binary options market, the primary
goal is to look for clear trends in the market so that we can increase our
odds for profitability once a trade is placed. From these examples, we can
see that finding charts that show clear trends (either uptrends or
downtrends) will give us a much better chance of determining how prices
will move in the future. Once we have this directional forecast, we can
then choose whether to enter into a CALL or PUT option for the asset we
are trading.

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Trading with Fundamental Analysis

Finally, traders looking to implement a more real world approach in


their trading can look to economic data releases and news headlines that
will be relevant to the way specific assets perform. If we remember from
previous examples, jobs creation can have a major influence on the
prospects for a country’s currency or benchmark stock index. Positive
numbers can be used as a basis for CALL options while PUT options will
often be used after negative data is made public.

Here, we will look at the ways monthly jobs data influenced the S&P
500 in the US:

The nation’s Unemployment Report was released early in the trading


day on October 5, 2012. Overall, the report was a positive surprise, as the
number of unemployed people dropped for the month. Let’s take a look at

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how markets responded immediately after the data was released. Clearly,
markets were encouraged by the data and buyers came flooding into the
US Stock market.

But how could binary options traders have profited from this
information? Well, given the encouraging news (fewer people looking for
work signals a stronger economy), traders could have entered into CALL
options in the benchmark stock index in the US, the S&P 500.

Since this information was new to the market, investors needed time
to respond (buy stocks) and binary options traders could have capitalized
on this time difference by taking CALL options on the expectation that
prices would move higher throughout the day. When trading economic
news releases 1 day options tend to be the most popular choice because
the news sets the tone for the entire day.

Here, traders watching this news release (jobs report) in advance


would have known that stock markets were likely to move higher and CALL
options would have been a high probability trade.

Conversely, a negative economic report would have led to the


reverse scenario, making PUT options the better choice. Note the
example below, which shows the impact on the Australian Dollar (relative
to the US Dollar) when national GDP figures were released and came in
below analyst expectations:

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This example is significant for many reasons, as it shows that economic


data reports will not only influence stock markets but currency markets as
well.

In early September 2012, Australia’s Gross Domestic Product (GDP)


report showed that the country lost strength in productivity when compared
to the previous year, and as a result, investors sold off the country’s
currency (the Australian Dollar).

In this case, binary options traders could have entered into PUT
options on this currency, based on the expectation that markets would
continue selling the Australian Dollar because of new evidence showing
economic weakness.

Finally, we will look at an example in commodities, as this asset class


tends to trade off of data that is different from what tends to drive the stock
markets and currency values. Previously, we mentioned that these
markets tend to be influenced by supply and demand factors and one

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example of this can be seen with the weekly inventories report for oil. This
report shows the total levels of oil storage and production in the US (which
is the world’s largest consumer of oil.

So, in cases where inventory levels are shown to be high (increased


supply) we would expect the value of oil to drop, creating the potential for
new PUT options. Conversely, when inventory levels are shown to be low
(declines in supply), we would expect the market value of oil to rise,
creating the potential for new CALL options. Let’s look at a chart example
in real time.

On September 19, 2012, weekly oil inventories showed a large increase in


oil supplies. Increased supplies generally lead to lower prices, and the
market reaction followed this negative trajectory once the information was
made public. Binary options traders could have seized on this opportunity
by entering into PUT options after the economic report was scheduled.

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Moving on to Advanced Analysis

At this stage, traders will have a firm understanding of the


fundamental aspects that go into creating high probability trading setups.
Fortunately, there is not a single method that will be tied to all occasions.
For traders who consider themselves to be more technical or mathematical
in nature (perhaps, “left-brained”), we can use charting levels to identify
how trades should be placed and when they should be initiated.

At the base level, these forms of chart analysis rely on market terms
such as “support,” “resistance,” and “trend.” These price elements can
give traders critical information when looking to construct new trading
ideas. Support levels allow traders to see when the market has stepped in
to influence prices and push them higher. This situations create excellent
opportunities to enter into new CALL options.

Conversely, Resistance levels offer the opposite scenario. Here,


traders are able to locate historical areas (using their charts) to determine
when prices have failed in the past, and are likely to fail again in the future.
This information can be critical for determining times to begin PUT options.

Trends can also be used. If traders are able to locate price charts
showing clearly defined higher highs and higher lows, an uptrend is in
place (an excellent opportunity for CALL options). If lower highs and lower
lows can be found, a downtrend is present and PUT options should be

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taken. But even when traders find themselves reluctant to use price charts
to construct trades, other opportunities can be found when major economic
reports are released to the public. Here, fundamental strategies can be
used to make price forecasts and create new trade ideas.

All of this information can be applied to markets of all asset classes.


So if you are interested in trading stocks, stock indices, commodities,
currencies or any other trad-able asset, this logic can be used to make
forecasts and construct binary options trades. In the Advanced section of
this eBook, we will build off of these idea and learn to combine strategies
in order to create opportunities for even higher probability trades.

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