5 Reasons To Trade The Daily Charts in Binary Options

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5 Minute Binary Options Strategy

A quick look at the best types of strategies for one of binary option’s most popular expiry times: 5 minute.

Strategies For Five Minute Option Expiry

There are a lot of ways to trade the 5 minute binary options expiry. This time frame is one of the most versatile in terms of the types of strategies you can use because it is inherently volatile yet at the same time can sustain a trend long enough to be useful to us binary options traders.

You can look at the bigger picture with 5 minute candles or you can drill down to 1 minute charts to see the swings in momentum. When choosing a strategy it really comes down to what kind of trader you are, what types of analysis you prefer and in the end, the asset you are trading.

When it comes to assets there is really no one class that performs best in the 5 minute time frame although most binary traders prefer forex, commodities and indices, not necessarily in that order. These assets tend to have more day to day action because they are traded globally around the clock and will move up/down within their near term ranges with more conviction than less liquid stocks.

When using the 5 minute expiry set charts to 1, 2 or 5 minute for best effect.

Most strategies are adaptable to any time frame, the caveat is that the shorter the time frame the less reliable the signal. A candlestick signal on the daily charts is stronger than one on the hourly charts that is likewise stronger than one on the one minute charts.

  • Price Action Strategies – Price action strategies are trading in it’s simplest form. Traders simply pay attention to price action, the minute to minute changes in prices, and how that action behaves in order to make trading decisions. In the old days this was done by watching the ticker tape all day, today it is much easier and more fun to use a charting package like MT4. These will work with charts set to 1,2 or 5 minutes. Patterns include triangles, head & shoulders, pennants, flags, diamonds and many more that can indicate continuation or reversal in the market.
  • Scalping Strategies – Scalping strategies are very short term form of price action trading although they also incorporate other types of signals as well. Scalping, simply put, is a trade based on what you think the market is going to do in the next period, and this usually means minutes, never more than 10, 5 is perfect. These strategies do not care about trend, only on which direction the market is going now and if it will keep going that direction long enough to place a quick trade. These are best used with charts set to 5 minutes as the signals are generally good for the very next candle.
  • Japanese Candlestick Strategies – Japanese Candlesticks are the premier method of viewing trading charts and give a variety of signals that are at heart price action signals but can also be used for scalping and other types of strategies. The candlesticks are nothing more than an expanded method of plotting price data on a chart but the effect is startling, almost like putting on a pair of glasses and seeing the world clearly for the first time. Candlestick signals are good with any chart setting, depending on which method of trading them you choose.
  • Momentum/Swing Strategies – Momentum is an important aspect of price action and technical analysis. When prices, the market, moves it has momentum. Momentum is the amount of force behind the move, this force is the sum of the people and money moving into, or out of, an asset and can carry prices in once direction for an extended period of time. When this happens you want to trade with the momentum using an indicator like MACD or stochastic. Sometimes the markets momentum will carry it too far in one direction and when it does, prices will swing in the opposite direction in order to rebalance. I would suggest using the 1 or 2 minute charts with this type of strategy/expiry combination.
  • Trend Following Strategies – When there is enough momentum, often described as the entrance of new money entering the market, a trend can be established. A trend is a periodic and systematic movement in which longer term moves in one direction more than offset nearer term corrections in another. Trends, like all aspects of technical analysis, can be both measured and predicted. This means that those nearer term corrections are entry points in trend following strategies. One of the oldest sayings in trading is “the trend is your friend, always trade with your friend” and it’s still around for a reason.

This video shows how to use multiple charts at IQ Option. This can be useful if trying to spot trends over multiple timeframes as mentioned above:

What Time Frame Should I Use On My Charts?

This is a very common question, frequenting popping up in the comment section of articles involving indicators, strategies or trading in general. “What time frame should I use on my charts?” is a good question, but ultimately it depends on your trading style, personality and the type of strategies you gravitate toward. Here we’ll address these issues so you can focus on the time frame that is right for you, saving you from frustration, wasting time and maybe even some losses.

What You Have Time For

In order to determine what time frame to watch on your chart, you must first assess how much time you actually have each to look at your charts. If you only have 20 minutes to check out charts after you have worked a full day and most of the major markets are closed, day trading isn’t a viable option. Therefore, you’ll need to focus primarily on 4-hour or daily charts which allow you to see longer term trends so you can base your trades on those. You’ll most likely have to be a swing trader, or longer-term trader, with trades lasting several days to a few weeks in the latter case.

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If you have a few hours during the day to dedicate to your charts, while major markets are open, then you have a few more choices. If you like sitting in front of your computer and actively trading with “your finger on the trigger” so to speak, then a watching a short-term time frame, such as a 1 or 2 minute chart is likely ideal. This time frame will give you the most trade set-ups for the time you have.

If watching every tick of the chart drives you crazy, then you’ll likely want to use a 5 or 15 minute chart. You’ll still likely get some trade signals, but not as many. You’re able to utilize your time effectively, but not drive yourself insane.

It’s worth noting that while some markets like forex are open 24 hours during the week, there are some points in that 24 hour period which aren’t worth trading. If you are trading forex pairs like the EUR/USD or USD/JPY, you want to make sure that either the European and/or US markets are open when trading the EUR/USD or the US or Japanese markets are open when trading the USD/JPY. When at least one of the markets in a forex pair isn’t open, price movements can be very random and thus not ideal for trading.

Trading requires well defined trading plan and strategies. Without a strategy a trader is just throwing darts hoping they hit something–which isn’t viable over any length of time. So hopefully you have come up with or found a few strategies that you like. Likely these strategies are best applied to certain market conditions, certain times of day or to a certain time frame.

Some strategies are easily adjusted to almost any time frame, while others will only work under specific conditions. For example, there are strategies designed specifically for the few minutes surrounding when a market opens. Trying to apply such a technique during the middle of the day is likely to be a losing proposition.

Analyze your strategies and determine what the best time frame is for those strategies. Hopefully what you have time for (section above) and the time frame your strategy requires align. If not, you’ll need to find another strategy until you have more time to dedicate to trading.

No One Time Frame is Perfect

The sections above hopefully helped you narrow down what type of time frame you should be watching. Ultimately though there is no perfect time frame that will suit everyone. Some traders are successful trading off tick charts, while others off 15 minute or daily charts.

This is where I will throw you a curve-ball. It is recommended that you don’t only look at one time frame. While a 1-minute or tick chart may show you a lot of information about very short-term movements, they don’t show the overall trend of what you are trading. A daily chart, may show the overall trend, but isn’t good for picking out intra-day entry points. Therefore it is recommended that traders don’t get addicted to only watching one time frame. Instead, look at two or three time frames.

Short-term traders can view a 1-minute, as well as a 15 minute and 1-hour or 4-hour chart. The 1-minute provides entry and exit signals while the 15 minute and hourly make sure the trader is acting on more complete information about the trend and support and resistance levels.

Swing traders and longer-term traders may focus on a daily chart, but can also use a weekly chart for providing a larger context for the trend and support and resistance levels. A a 15 minute (for example) chart can also be used for fine-tuning exit and exit points.

Looking at more than three time frames becomes cumbersome, and likely counter-productive.

Since there isn’t a “best” time frame to use on your charts, focus on a time frame that works best for you. What is best for you will depend on how much time you have which in turn affects what type of trader you will be. Then you need to make sure your strategies are aligned with the amount of time you have, and your personality. This will help you determine your “main” time frame, but ideally you should also look at one or two other time frames as well. This will provide you with more information about the asset you are trading, such as which way the short and long term trends are moving, and where important support and resistance levels are.

A Guide to Trading Binary Options in the U.S.

Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?

Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.

Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.

Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.

U.S. Binary Options Explained

Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.

Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?

If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.

The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.

Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.

A Zero-Sum Game

Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

  • NASDAQ US Tech 100 index > $3,784 (11 a.m.).

The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)

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