Binary options trading: Volatility analysis in binary options trading
In binary options, when you trade an underlying asset such as a device, raw material, index or stock, you have to be aware of a major factor: volatility. It is very beneficial to analyze volatility before choosing the direction the asset will take and before you determine the ideal moment to trade.
What is volatility analysis? Volatility analysis involves determining the underlying asset’s price variations by studying the daily fluctuations. Binary options volatility analysis helps you to choose the ideal moment to trade the asset and to determine market stability. There are two types of volatility: historical volatility and implicit volatility.
Historical volatility: Historical volatility, as the name suggests, is based on the underlying asset’s price history. It is appropriate to analyze the past volatility of the asset price and to link it to previous economic and social events, political announcements, or announcements from a central bank governor. By consulting our economic calendar, you will see an historical analysis of an asset’s pricing in order to determine the ideal moment to trade.
Implicit volatility: Implicit volatility is based upon personal feelings such as fear and greed when making a trading decision, as well as the volatility of the underlying asset in relation to supply and demand. It helps you anticipate the asset’s volatility in the future over a predefined period of time. Technical analysis, most notably examining the Bollinger Bands, proves very useful when determining the direction of implicit volatility.