Choosing Your Scale For Binary Options Charts Discussed In Brief

Price charts can be an indispensable technical analysis tool for binary options traders because they identify patterns and so enable future movements to be determined. However, you need to develop charts that are easy to interpret, which might not be easy if prices change by large amounts.

Time Interval

A typical price chart shows time along the x-axis, which is divided into periods of a set length. How long each period is will depend on whether you undertake short or long-term binary options trading. You may choose intervals of minutes or hours for the former but weeks or months for the latter. But once you set your period, it will remain the same length.

The y-axis of the chart shows the price of the asset being traded and this can be more difficult to predict when setting a scale. In general, it may be determined by how the price has moved in the past and you will generally choose an arithmetic scale where each division is of equal value. Thus, if a stock has mainly fluctuated in price between $3 and $8, you may choose a ten point scale where each interval represents one dollar.

Large Fluctuations

An arithmetic scale may not be practical if an asset price suddenly fluctuates a long way outside its normal movement band. If your $3-8 stock suddenly shoots up to $50 because the company launches an amazing new product, then the price has gone off the top of your chart. If you adjust your arithmetic scale to compensate for this, all the lower prices can then be squeezed into a small area and be difficult to see.

The answer may be a logarithmic scale where each increment on the price axis represents a value that is ten times the previous one. This means that extreme fluctuations can be accommodated and all prices can be plotted.

Whatever scale you choose, ensure the prices shown are up-to-date.