In digital options trading, South African traders make use of digital options charts so as to be able to predict the movements of prices through the use of historical patterns. This practice of analysis is usually called technical analysis. It is so popular that a high number of trading platforms have in-built technical analysis tools. This article is aimed at giving a South African trader the ability to understand various patterns. IQ Option has used digital options charts in most of its analyses, and this has led to increased profits for the traders in South Africa.
Major principles of technical analysis
A South African trader should understand the principles of technical analysis. They are:
Prices move in trends
This means that once a certain trend in the market prices has been recognised, the future movement in price will most likely be in the same direction as the previous trend. It will not be against the past trend.
Prices discount all things
This means that the market always takes all those factors into consideration that could affect an asset’s price. Technical analysis, therefore, believes that all factors have been already put into consideration, hence erasing the need of critically analysing each factor discretely. The only thing that a trader in South Africa needs to know is the movement in prices. The rest is believed to be taken care of.
History will always repeat itself
IQ Option advises traders that the movement of prices in digital options trading is a recurring activity. This is due to the market psychology meaning that every market player will react the same way in the occurrence of particular events in the market. This is the principle that is mostly applied to help in predicting the future trends in the market.
Fundamental Analysis versus Technical Analysis
Fundamental analysis, according to the expert information given by IQ Option, checks on the basic factors of the economy such as financial statements of stocks and securities. Technical analysis is purely based on digital options charts and trends. The trends could cover months, weeks or days. Fundamental analysis can analyse for a period of over one year.
Types of patterns
Regardless of a chart pattern’s shape, digital options charts will always be in two major categories:
Reversal pattern: This pattern insinuates that a previous trend could be about to close, hence advising traders in South Africa to reverse and change tact.
Continuation pattern: This pattern indicates that in spite of some minute movements in prices, the trend is most likely to continue with the movement in price.
Head and Shoulders Chart Type
This is one of the most reliable reverse patterns. Most of the traders who make use of technical analysis use this to predict that a trend upwards could be about to change direction. The pattern is a perfect display of the bull and bear battle. IQ Option has used this pattern to help traders make the best decision on when to enter or exit trade hence make profits or prevent further losses.