Volume analysis is one of the methods binary options traders can use to determine whether to select a CALL or PUT option on a particular asset. The other important technical analysis in binary options trading is price action.
When it comes to volume analysis, watching volumes movements can give a hint about the majority opinion in the market and the insight can be used to make more accurate prediction on the asset being traded.
Binary option enables you to profit from predicting price directions of a variety of assets without actually buying or selling the assets. Some of the assets whose options you can trade online are currencies like the EURUSD and commodities like gold and oil.
While volume analysis is a great way to minimize risks and maximize returns in binary options trades, many traders often ignore it. However, those who carefully analyze volumes have so much to show for their efforts.
Get the broader picture
You will generate useful and actionable insight from volume analysis if you focus on the entire market rather than just your broker. If you only look at the volumes transacted by your broker, you will only know the sentiment of investors trading through your broker and that means you’ll only get limited information that can be misleading at times. Because you are competing with the market, you need to analyze the volumes of the entire market.
Analyzing volumes in binary options trades
After you have established the market-wide volume of the asset you’re watching, the next step is to analyze the data for information you can use to increase your winning chances in a binary options trade.
To do this, get a current hourly chart of the binary option you’re interested in and identify the largest candles in the bull and bear markets. The next step is to average the highs and the lows of the two candles. Once you’ve done this, connect the high point of the bull market volume to the high point of the bear market volume using a straight line. Do the same to the low points of the two candles.
With the points connected and the lines drawn, you can place your CALL on PUT option depending on whether the volume is trending toward the maximum or the minimum.
Therefore, volume analysis is a great way to figure out market trends that you can leverage to bolster your predictions for profit. Traders should keep in mind that price movements at the volume highs tend to offer more useful insight than price movements at the volume lows. Additionally, traders should know that high volume price changes tend to signal a potential reversal.
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Putting the insight into action
A binary options trader will select CALL option when they expect the price of the underlying asset to rise above the point at which they purchased the option when their option period expires. On the other hand, a trader places a PUT option when they expect the price of the underlying asset to fall.
Successful binary options traders know that technical analysis can make a huge difference between winning and losing an option trade.