There are many financial instruments available for trading. However, traders still chose options, due to its simplicity when it comes to trading. Various complicated calculations take place when trading in most financial markets.
For example, calculating stop loss, take profit, risk vs reward, etc. Binary Options make it easy and understandable for beginners because traders only have to predict whether the price will be higher or lower within a specified period of time. If your calculations were correct, you bank the profit.
Binary options have an expiry time, which can vary depending on the broker. The expiry time usually ranges anywhere from 30 seconds up to months. For example on Binomo, the shortest available expiry time is 60 seconds.
he benefit of a short expiry time is the ability to earn a fast profit. On the other side, the loss can also occur fast. While teaching my students, I’ve mentioned many times that my preferred Binomo expiry time is not less than 5 minutes. And now I’ll try to explain what are the reasons for such a trading approach.
Have a look at AUD/USD 1M chart below, where 1 candle equals 1 minute. If you look at the past 5 candles, you will notice that price was trading within 1 pip rage with a minimal movement on 0.0001 points.
If I would have taken the trade with 1m expiry, I’d be trying to predict if the price will be higher or lower in just 60 seconds. On lower time frames there is a lot of market noise. This means that the clarity of the trend is very little, making it harder to determine market direction. Market noise decreases with the higher time frames, thus making it much more predictable and suitable for profit-making.
Market noise on low timeframes does not depend on the trading platform, as it is a common price behavior in the financial markets. Therefore, analyzing a higher timeframe or even multiple timeframes will substantially increase the chance of success.
Trading higher time frames on Binomo
As I have already mentioned, trades should last no less than 5 minutes. Perhaps good advice is to use proportional numbers of candles in relation to the time interval you are using for your analysis and/or trading.
For example, if you analyze the chart on a 1M interval, the expiry time should be set to 5m, which is 5 candles. But if you analyze the chart on the 15m chart, then use 5x15m chart candles. This would make it at least 1H expiry. This formula can be adjusted depending on the timeframe you chose to trade.
Higher time frame trading will reduce the market noise and increase the potential of higher price movement. It is always easier to predict the market when the direction is more clear and chances of the big price movement happening are higher.
But there are more reasons why longer expiry times can be a way to go. In trading, human psychology plays an important role. When trading financial markets, emotional pressure can be very strong, which might depend on the level of your risk-taking.
Financial market trades in cycles and can be either trending or consolidating. The dominating part is the consolidation phase or in other words a sideways move.
During consolidation “CALL low, PUT high” approach seems reasonable. Although 1M expiry time might not be enough for the price to reverse, or make any sort of movement. The chart below clearly shows that the price can stay nearly at the same spot for 2 or 3 candles.
Use a 1m chart for finding an entry signal with a 5 or even 15m expiry time. The same approach can be applied to all other charts, whether you are using 5m, 15m or 1h timeframe.
Amongst the options trading community, there is a belief that some brokers can manipulate price behavior on lower time frames. There is no proof of this, but if it’s true, you are very likely to lose money while trading using 1m expiry.
If there are broker manipulations, it will take you quite some time to notice them, not to mention the price you might pay for such discovery. So why take such unnecessary risk when you can simply trade using longer expiry time.
Exceptions for short Binomo expiry time
Having warned you about the risk of short expiry times there are still instances when 60 seconds expiry can be very profitable. There is only one case that I can think of. This is when the market is clearly trending. There are multiple indications of an ongoing trend. Here are just a few of them:
- Volatility and trading volumes are increasing.
- Breakout of the support or resistance.
- Candle bodies are becoming larger.
- Price produces higher highs and higher lows in an uptrend. In a downtrend lower lows and lower highs.
Along with the above-mentioned clues, you can use trading indicators, such as the moving average or the oscillator or your choice.
In order to catch the emerging trend or go with the already established, you must monitor the market. Because of the short timeframes, this can happen very fast. But you can set yourself a specific time for trading. Choose for instance time when a trading session begins or financial news is released.
Obviously the same can be applied when you trade on longer timeframes.
What is your preferred expiry time? Have you traded 60 seconds expiry on Binomo? Please share your experience in the comment section below.
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