Depending on which time frame you use for your binary option investments, you have to adjust your trading accordingly or you will lose money.
What is the difference between timeframes?
The best way of trading binary option is by using candlestick charts. Candlesticks collect all market movements over a certain period of time and aggregate them into one candlestick. The time period one candlestick aggregates is called the time frame of your chart. The time frame can range from 30 seconds to one month. By changing the amount of time one candlestick aggregates, you change the time frame of your chart.
This is important: Different time frames feature vastly different characteristics. Therefore, they also require different trading strategies.
As a general rule of thumb, remember that market movements become more erratic and random with shorter time frames. On longer time frames, on the other hand, the random movements of shorter time frames are less important. The market moves straighter and does not has less of a tendency to create random reversals.
To give you a more detailed understanding of the different time frames, we will now provide you with an in depth-analysis.
30 and 60 seconds time frames
On 30 and 60 seconds charts, the erratic nature of the market is in full effect: The market will often switch direction randomly, there are no long lasting trends, and it is hard to find a big picture. In this kind of market environment you should use more of a gambling approach: Since you cannot guarantee whether you will win or lose a trade, it would be foolish to employ a strategy that requires you a high percentage of your trades.
Instead, you have to use the random nature of the market to your advantage: When market movements are random, anything can happen. Gambling type strategies use this environment to make money.
Gambling type strategies don’t expect to you to win a trade. Instead their only goal is to win a high enough percentage of your trades to create an overall profit. They are mainly based on leading indicators such as oscillators. With a strategy like this you could trade boundary options based on the relationship of the average true range to the distance of the target price.
This type of strategy would only require to win about 30 percent of your trades. By fine-tuning the parameters, this goal can be easily accomplished. Strategies like this are perfect for the fast-paced nature of short time frames and can make you a profit without you having to predict something you cannot predict.
5 and 15 minute time frames
5 and 15 minutes time frames are the most popular time frames with binary option traders: They deliver quick results and allow many trades, but are less influenced by the random market movements than shorter time frames. On 5 and 15 minute time frames, the market creates trends. While these are shorter and somewhat more wobbly than trends on longer time frames, they can help you make good predictions and win binary options.
To make valid predictions, work your way down from an hourly chart. Understand the underlying trend and how it influences the shorter time frame you are looking at. Often, you will find patterns that allows for accurate predictions.
An impending reversal due to a trend on an hourly time frame, for example, will have significant impact on a shorter time frame, too: Most likely the 5 and 15 minute time frame will form a trend that takes the market to the trend line of the underlying trend on the longer time frame. Then, the shorter time frame will turn around and create a trend in the opposite direction.
30 minutes and hourly charts
The longest time frame you should trade with binary options is one hour. Start analysis from a daily chart, find the main trend, and work your way down to the 30 minute or hourly time frame.
On these time frames, random short movements have very little effect. Therefore, you should base your analysis entirely on what you see. Choose your expiration time the way the chart dictates. You do not have to factor in random movements.