Market Psychology


There are no two binary option traders who have the same psychological attitude to trading particularly with respect to how they handle winning or losing streaks. This does not hold true for the psychology of the market, as this is a group psychology and to be a successful binary options trader you should study and follow this psychology.

The key is to study very closely the asset markets. To do this you will have to use the two basic tools which traders use to study financial assets: technical analysis and also fundamental analysis. This might sound like a lot of hard work but it’s not, however it does take some time to learn a few basic things which will help you become a successful binary options trader. The basic starting point for following market sentiment is to start with technical analysis and the starting point is the candlestick chart. This chart shows in graphic form the sentiment of all the participants in the particular asset markets. What do mean by traders sentiment? Well it’s the culmination of all the traders’ psychological makeup and their emotions on a particular asset.

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As you can see from the candlestick chart above if you followed market sentiment you would have made some nice profits.

Where technical analysis is what is called a ‘warm’ science as it deals with psychology and emotions. Fundamental analysis is considered a ‘cold’ science as it deals with hard facts in the form of numbers and statistics without any input of emotions or sentiment.

Below is a snapshot of an economic calendar which can be found on many sites on the internet. It shows the main economic news releases of the day and their importance. For example the release of the 6 month bill auction in the USA is not going to have any significant effect on the markets and this is signaled by one yellow vertical bar. However, the release of the industrial production figures for the European Union will have some significant effect on the markets and this is signaled by two red vertical bars.

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Both technical analysis and fundamental analysis are important to a binary options trader in order to be a successful trader. There is no need to learn all there is to know but there is a minimum amount of knowledge that you should learn in order to understand the price charts and the economic calendar. Once you have the necessary knowledge you will be much more focused and zoned in on the investment scene for the assets you have decided to invest in. You might be lucky and start to make money by making guesses, but it won’t last long because you will be remote from the psychology of the market and the sentiment of the investors in your chosen asset or assets. So in order to profit from the psychology of the markets you should have some facility in technical and fundamental analysis.

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