One of the primary duties of a Wall Street analyst is to figure out exactly what a company is worth. Then, if the total number of shares outstanding multiplied by the share price is lower than the actual value of the company, then buying the stock is the correct move. When the price goes above a level that the company is worth, then it’s time to sell the stock. This is the (very) basic reasoning behind how decisions on buying and selling are made, and knowing this is a great way to give yourself an edge in your own short term trading, regardless of whether you are trading in the traditional stock market, using binary options, or some other method.
Some companies are easier to analyze in this respect than others, and when it comes to those stocks that are offered within binary options brokers, they are typically far more difficult to analyze with high degrees of accuracy because of the fact that they are the biggest companies out there. For example, Alphabet is one of the biggest companies in the world, if not the biggest, depending on the day. But they own far more than Google. They have healthcare branches, focuses on new technologies like driverless cars, and many other branches, and figuring out what each individual part of the conglomerate is doing and what it’s worth at any time is very difficult to do, even for the most talented analysts in the industry.
Smaller, individual traders, such as ourselves have a few options here. We can spend a lot of time doing our own research, we can ignore the fundamental data that drives the prices completely, or we can take a middle ground that looks at a few analyst opinions that we trust and use that. This is the far smarter choice as it allows us to better use our time for using the information rather than creating it. Putting effort in of your own to double check info is always smart, but once you find an analyst that gives you trustworthy information, this really isn’t something that you need to do often unless you want to. Having good info is important, and it really doesn’t matter to your broker where you get the info from. What does matter is how you use it to create more of a profit for yourself.
Luckily, short term traders have an advantage that big trading firms do not. We are not buying an asset to hold for a portfolio of investors for months or years at a time. We are focusing on the tiny day to day changes and finding profitable opportunities within those. So it’s not an issue to buy a stock, watch it climb in value, and then unload it before it can drop, even if those gains only last for a few minutes or hours. Also, we have tools at our disposal that are far better equipped for short term profits. Trader sentiment is the biggest of these. When a stock, or any other asset, is falling at a very fast pace, such as what happened to Alphabet last week, we can take out short sales or put options and profit off of it, even if the drop was not warranted based upon the fundamental information. This can go the other way, too. If a stock is climbing quickly even though the analysts say it shouldn’t, we can use that fact to create positions that give us a profit, and then be far away from the asset before reality sets in. As long as we understand how reality influences prices over the long term, this is a fine strategy.