If you log onto just about any binary options platform, there are a few common features which you can expect to see across the board—one of which is the presence of a chart for the asset you have selected. You will see this on SpotOption as well as the other major white label trading platforms which power most binary options websites, and you will see it on proprietary platforms as well.
When you are a newbie to trading, charts can seem really intimidating. In essence however, they are fairly simple. The complexity of analyzing them depends very much on what you choose to do with them.
In this article, I will teach you everything you need to know about customizing and understanding binary options charts so you can make smart and profitable trading decisions!
What Are Binary Options Charts?
Binary options charts show you what price has been doing over a certain specified time period. You can see the present price of an asset, and you can look at how high or low that asset has risen or fallen over the past few minutes/hours/days/weeks/etc. You can also see the open, high, low, and close for each specific candle (if you have your chart set to show candles—more on that shortly).
Charts allow you to visualize the movement of price. Furthermore, if you are using sophisticated charting software (which your broker may or may not provide), you can add indicators and draw lines to help you interpret that movement and make predictions about the future. These tools are incredibly valuable—so use them.
Where Can You Find Binary Options Charts?
You have a couple of options when it comes to locating charts to use.
- Use the charts provided by your broker
- Download software (see the next section)
If you want to use the charts your broker provides, you should find them on the trade page. Just select the asset you want to trade, and the relevant chart should open. If plenty of useful tools and indicators are offered and the chart is clear and updates in real-time, you can feel free to use it. If however your broker does not offer advanced charting tools or the charts lag behind, I strongly suggest downloading charts.
Free Software to Download
Say that you are not satisfied with your broker’s charts. At that point, you should turn to some other charting software. Here are some recommendations:
- Free Stock Charts. If you are trading stocks, I recommend this as your solution. It is totally free, and actually, you do not have to download anything at all—it runs right in your web browser.
- MetaTrader 4. For currency pairs, I cannot recommend MT4 highly enough. You do have to download it and it takes a few steps to get it set up, but once you do, you will be amazed by how feature-rich this totally free program is. And what is super awesome is that you can set audio alerts, so you can step away from your computer and be notified if any of them are triggered.
Actually, I recommend downloading a program like MT4 no matter what, even if your broker provides usable charts. The reason is that MT4 is great for backtesting, since it has a lot of historical price data loaded in.
Setting Up Your Charts
Once you have a chart open, you are going to want a few steps to get it set up the way you want:
- Select the right timeframe. If you are taking 60-second trades, obviously the hourly or daily chart for an asset is of no use to you. The opposite is true as well; if your trades span several days, something like the 4-hour chart is going to serve you well, but not the 5-minute or 1-minute charts. Just to clarify, the timeframe tells you how long each bar/candlestick is. On the 1-minute chart, each candlestick represents 1 minute of time. On the 4-hour chart, each candlestick is 4 hours of time, and so on.
- Choose a format you find easy to read. Examples include line charts, bar charts, and candlestick charts.
- If you use bars or candlesticks, I strongly recommend coloring the bullish ones green and the bearish ones red.
- Zoom in or out as you need in order to get a clear view of what is going on.
That is pretty much it. I recommend doing some extra research on these settings. In particular, if you do not understand what bars and candlesticks represent with the open, high, low, and close, educate yourself on that, because it is going to really help you out. In fact, you can get started by reading my Guide to Candlesticks.
Trend lines and Visualization Tools You Can Use on Binary Options Charts
Now that your charts are set up, you are ready to start learning about the trend lines and visualization tools you can use to see what is going on with price. I am not going to get overly in-depth on this as that is outside the scope of an introductory guide. The goal is just to get you started discovering how to trade with charts.
Here are some common charting tools you can use:
- Simple horizontal lines. These are useful for denoting pivot points which you identify around areas of support and resistance.
- Trend lines. These are lines which you can draw at any angle. They allow you to visualize support and resistance in a different way. You can also use them to visualize channels.
- Fibonacci levels. This is a tool you can use to draw Fibonacci levels on your charts. Once again, these help you to identify areas of support and resistance.
- Text. You may sometimes wish to type notes on your charts.
One thing that is really important to grasp when you are studying price charts is that you are not trying to predict the future. Well, you are—and you aren’t. What you should be focusing on is trying to understand what price is doing right now. This is the key to making accurate predictions about what is likely to happen next. It also helps you to see when a trade which you are in now no longer is justified, which tells you when it is time to exit early.
Adding Indicators to Your Charts
Along with the basic drawing tools mentioned above, you can add numerous different types of technical indicators to your binary options charts. You can use these to conduct analysis and look for trade setups. Here are some examples:
- Bollinger bands: This is a common indicator which is used to measure volatility. The volatility is represented through the expansion and contraction of the bands.
- Ichimoku: When you put this indicator on your charts, you will see a sort of cloud shape accompanied by five lines. It can be used to visualize market trends, support and resistance.
- Moving Average Convergence Divergence (MACD): With this indicator, you see two moving averages along with a histogram. It helps you spot new trends as they are just starting to form. Look for an expansion in the histogram and a crossover in the moving averages. Also look for situations where the histogram is moving in the opposite direction from price, which is a sign of an upcoming reversal.
- Momentum: If you see momentum slowing down, that may mean that price is about to reverse.
- Moving averages: Very likely, the first indicator you ever put on your chart and learn how to use will be a moving average. When you put moving averages on your chart, you see a smoothed-out version of price movement, which helps to make the trend clear. You can plot “faster” and “slower” moving averages and look for crossovers to spot reversals.
- Parabolic SAR: This is a very distinctive-looking indicator where you see dots above or below the candlesticks. If the dots are over top, they are telling you to sell. If on the other hand they are underneath, they are telling you to buy.
- Relative Strength Index (RSI): This takes the form of a couple of horizontal lines with an oscillator between them. Anytime the oscillator is over 80, it tells you that it is time to sell. If you see it fall under 40, it is time to buy.
- Standard Deviation: This is a way to visualize the difference between closing and average prices, while also looking at volatility.
- Stochastic: This indicator has an appearance which is similar to that of the RSI. It helps you figure out when to buy or sell.
- Volume: This tells you how strong or weak a trend is, and whether it is likely to soon reverse.
This is hardly a complete list—just a few of the most popular indicators. Some programs (like MT4) even let you load in custom indicators of your own.
Expert Tip: Try to avoid the temptation to cover your charts with dozens of indicators. If you do, you will have a hard time seeing what is going on, and will get too many conflicting signals.
You Can Use Charts For Price Action As Well
While binary options charts allow you to conduct technical analysis, that is not the only approach you can take to try and interpret what is happening with a financial instrument.
Price action is a form of analysis where you look for formations in the bars which commonly precede trend reversals or the start of new trends.
This is a particularly elegant approach to binary options trading, because you are letting price itself speak to you. Some purists in fact do not put any lines or indicators whatsoever on their charts. They just look for the patterns.
I recommend however that you look for some ways to combine some of the indicators and charting tools above with your price action techniques. Price action patterns only have reliable results when the surrounding context is right, and sometimes indicators and trend lines can help you make a determination (moving averages and pivot points work well).
If you want to learn more about price action, see my article on Candlestick Patterns to get started.
Creating Chart Templates
Finally, one more useful thing to know is that many charting platforms give you the option to create templates. So after you have your chart set up the way you want with indicators you usually plot, go ahead and save a template and give it a descriptive name. That way the next time you sit down to look for trade setups, you can load the template and save yourself some time. You can then get right to work. This may also prevent mistakes in the future (i.e. using the wrong values for moving averages).
Conclusion: Now You Are Ready to Get Started with Binary Options Charts
Many casual traders only glance at price on their charts when they open up their binary options trading platforms. They look at the way the line has been moving up and down, and make a gut guess at what it will do next. But that is not what charts are for.
Binary options trading charts are powerful tools—but only if you harness them as such. That means finding or developing a trading method which can produce repeatable results with the help of price action, technical analysis, fundamental analysis, or a combination.
Learning to make the best use of binary options charts takes time and effort. You will do a lot of research and testing before you are able to read charts with the same clarity and ease that you read a book. But with dedication, you too can learn to spot excellent trade setups and profit from them!