Benefits and Failings of Using Line Charts for Binary Options Analysis

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Some binary options traders use technical analysis to keep track of price movements. This allows them to establish trends, recognize patterns and identify where momentum is developing. The whole point of this is to be able to predict future movements more accurately.

 

Setting the Time Interval

Technical analysis is generally about producing price charts that track price changes at set intervals. The length of the interval often depends on whether the trader makes short-term or long-term trades. A few minutes may be appropriate for the former while intervals of days or weeks may be sufficient for the latter.

 

Traders have to decide which is the best type of chart to use to track prices and a line chart is often chosen because it is the most simple. A typical chart will show the asset price along the y-axis (vertically), plotting this normally by time or sometimes in terms of volume along the x-axis (horizontally). This type of chart is easy to read because the trader only has to find the required time along the x-axis and then look above it to see the price at that time.

 

A line connects the price points on the graph, running left to right to clearly show how the price has moved over a set period. However, the line chart has limitations for binary options traders because the line will show a smooth progression between the price points when in fact there may have been significant fluctuations during the intervening period.

 

Fluctuating Prices

When long time intervals are plotted, the price may have gone up and down several times between any two price points but the line will show a smooth progression from one to the next. The ideal situation for many traders is to see the high, low, open and close prices for each period, which can be shown on bar and candlestick charts. Nevertheless, line charts are useful to show general movements, are valued for their simplicity and are usually adequate for long-term traders who do not need to see each movement in detail.

 

Some binary options trading organizations, such as Banc De Binary, show price line charts on their websites. They also provide real-time price data from which charts can be built.