Learn the Trading Game: Knowledge, Indicators and Practice Makes Perfect

Trading involves two key components: timing and knowledge. The former is something of an art. You acquire the ability to time investments correctly through a combination of skill, experience, and luck. In reality, it’s hard to teach. Knowledge, however, that can be taught. Of course, you can’t consume all the requisite knowledge in one sitting. In fact, it can take years or even decades to reach the same level of competency as Bill Ackman or Warren Buffet. However, what you can do is start somewhere. You can pinpoint a style of trading you like and focus on the basics.

One trading style that’s often favored by novices is binary options. The reason binary options tick the right boxes is their flexibility. The fundamental mechanics of these trading options rests on one simple question: yes or no. Because you’re speculating on the price movements of a financial instrument, rather than investing in it directly, you can predict whether the market will go higher or lower. In short, binary options are more flexible than direct investments. What’s more, they’re ideal for short-term trading strategies.

Learn and Test Out the Basics

Once you’ve got a handle on the basics, the next step in learning how to trade binary options is reading technical indicators. The Nadex™ Binary Options demo trading account provides information on the most important indicators. Additionally, you get a $10,000 virtual bankroll that you can use to play the markets.

These markets are open 23 hours a day, five days a week, and mirror live trading markets. This setup allows you to not only learn about technical indicators but see them working in real-time. The virtual bankroll is essentially a buffer. It allows you to make mistakes without losing your money. Then, once you’ve got the requisite knowledge, you can start trading for real money.

As a starting point, some of the most important technical indicators for binary options are:

Relative Strength Index – This indicator compares recent gains to recent losses over a specified period of time. The aim is to establish the speed of change in price movements to indicate whether something is being overbought or oversold.

Bollinger Bands – This indicator is a marker of volatility. When a Bollinger Band expands, it indicates that volatility is increasing. When it contracts, volatility is decreasing.

Commodity Channel Index (CCI) – This indicator measures the difference between the current price of an instrument and its historical price average. It allows you to see when an instrument may be being overbought or oversold. It also tells you when an instrument is moving in an upwards direction (going from 0 to +100) or downwards (going from 0 to -100).

Stochastic Oscillator – This is a momentum indicator that looks at an instrument’s closing price versus a range of prices over a certain time period. You can adjust the time period and scores are generated between 0 and 100 using a special formula. This allows you to see whether something is being overbought or oversold.

You Can Never Have Too Much Knowledge

Beyond all of the technical stuff, trading is also about knowledge of current affairs. You need to have your finger on the pulse. Our site will keep you in touch with the latest financial headlines, but you should draw from multiple sources. Bloomberg’s free and premium financial news websites can give you lots of great information. You can also expand your searches to include social media platforms like Twitter and Facebook. Basically, you can never have too much information when it comes to news and market updates. Only by combining this knowledge with an understanding of how to trade can you give yourself the best shot at making the right investments.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes