Trading short time frames can generate the highest profits of any binary options trading strategy. Most strategies, however, do not work on short time frames. This article will show you how to trade short time frames successfully.
Unique characteristics of short time frames
Short time frames have some very unique characteristics. Many regular strategies are ill-suited to deal with these characteristics. To trade short time frames successfully, you need to make sure your strategy can deal with short time frames, adapt your strategy, or use a specialized strategy.
In general, the most challenging aspect of short time frames is the market’s erratic movement. The market will change direction often and quickly. Many strategies are too slow to react to this fast-paced environment. Therefore, they will miss out on good movements and create false signals.
There are a number of ways to make sure your strategy is well suited for short time frames:
1) Use leading indicators
Leading indicators, such as oscillators, predict market movements before they occur. This type of indicator tries to find weakening movements and anticipate when the market will turn around. On short time frames, when the market will move more erratic and turn around far more often than on longer time frames, leading indicators are perfect to anticipate the market’s next move. To make sure your strategy will work well on short environments, use leading indicators.
Lagging indicators, on the other hand, indicate market movements that have already occurred. In a slower market environment, they are perfect to detect trends. On short time frames, however, the market changes direction so often and so quickly that lagging indicators are too slow to react. They will always be one step behind the market and generate many false readings.
If you are using a strategy based on lagging indicators, you should trade only longer time frames. If you want to trade short time frames, you have to adapt your strategy.
2) Use candlestick formations
Candlestick formations are a great tool to predict future market movements in the fast-paced environment of short time frames.
Especially simple candlestick formations will create many profitable trading opportunities. Simple candlestick formations contain only few candlesticks, often just one candlestick. Their simple nature allows them to form in even the most erratic environment.
Because they consist of only one or a few candlesticks, simple candlestick formations can only predict the near future. Since longer predictions are almost impossible to make on shorter time frames anyway, this is no disadvantage. Look for simple candlestick formations, and quickly invest on the prediction they allow. As long as you keep your expiration time short (see point 3), you have a good chance of winning such an investment.
3) Use a short expiration time
To trade short time frames successfully, keep your expiration time short. Due to the erratic, quick-paced market environment on short time frames, your predictions are only valid for a short time. By using a short expiration time, you make sure that your binary option expires within the movement you predicted and not when the movement is already over.
Remember: The reason that you should not keep your expiration time too short is that you do not want short, random market movements to ruin a trade for you even though your overall prediction was correct. Now, on shorter time frames, you are trading exactly these short, random market movements. Therefore, there is nothing shorter left you have to stay away from.
As soon as you know that the market will move in a certain direction, invest in that direction. Keep your expiration time short, take your profit, and get out of the market before it turns in the opposite direction.