Different binary options traders will have varying opinions about the expiry date that should be chosen when choosing a direction in which to trade. The main issue is that the expiry date will depend greatly on the time frame which is being used. For example, it is pointless to trade with an end of day expiry date if the striking price has been taken from a five minute time frame, and the same holds true if trying to trade a 60 second expiry date when looking at a daily or weekly chart. Choosing the correct expiry date is essential when participating in binary options trading, so considerable attention should be paid to this.
Trading binary options, or indeed any other financial product, is entirely based on identifying the important levels of support and resistance and then selecting either call or put options as well as the expiry date. Being aware of the big picture of the asset being traded is key, and will make all the difference between becoming a successful trader or struggling to generate a profit. The largest time frame that brokers offer for analytical purposes is a monthly chart, and traders should use this chart to spot patterns that will give them a clue as to the direction that the market for their chosen asset will take. For example, a trader should look for triangles which are close to breaking and then when the B-D trend line is retested, they should consider purchasing either a put or a call option depending on whether the triangle happens to be bearish or bullish.
Looking for Trend Lines on Long Time Frames
Another thing to do is to identify channels or trend lines which form on longer time frames. When the channel is broken, a trader should look for continuation to the opposite direction to see if the channel will be retested. When using the Elliott Waves Theory, a top/down analysis will be made, which is done by counting the waves that appear on the monthly chart. Once analysis has been completed on the monthly time frame, the trader will progress down to the next time frame, which is the weekly chart, and continue on from where they left off with the monthly chart. They will then move on to the daily chart and then so on, so that the top/down analysis will be completed once the four hour and hourly charts are done too.
Although no one trades the weekly or monthly charts, they are important for providing information which can then be applied to the daily and hourly charts. Therefore, a trader will use information from those long time frames to trade on smaller time frames. The trader can then choose either an end of week or end of month expiry date for an option on the daily chart as the price will consolidate at the bottom of the channel on that time frame. Until the consolidation has been completed. It is almost impossible to be aware in advance of the moment in which the price is going to move, even if its direction is known, and when trading binary options, it is not just important to know the direction, it is also key to know the expiry date too.
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Using an Oscillator and Looking for Divergences
A longer time frame is also able to be used in conjunction with a smaller time frame as the longer time frame resistance is able to be solved by using the four hour and hourly charts by choosing an oscillator and looking for divergences between the oscillator and the asset price. This gives the trader the potential of finding the ideal striking price for their option while allowing a smaller expiry date than would otherwise be required.
The key to doing this is to gain access to a trading platform to perform analysis, with MetaTrader being one of the most popular. It is possible to search the web to find a forex broker which offers a demo account and then open one in order to access the MetaTrader platform. You can then open a chart on the asset that you are interested in trading and put it on the monthly, weekly, daily, four hour and hourly time frames to perform a top/down analysis on every time frame using the information derived from the prior time frame.
The monthly chart is essential here as brokers do not offer historical prices. You should ensure that you only trade the patterns which appear on the monthly chart and which have implications which can be forecast on the right of the chart. If you do not adhere to this principle, you will end up chasing a pattern which is not actually there as there will not be sufficient information portrayed on the left of the chart. Remember that trading is all about forecasting on the right of the chart based on information contained on the left of it.
Other educational articles
- Using Fundamental Analysis in Binary Options Trading
- Elliott Waves Analysis Really Works – Complex Corrections Patterns Included
- Elliott Waves – How To Trade 5th Waves Extensions Impulsive Moves
- Use the Straddle Strategy for a Possible Put and Call Double-Win
- Triangles as Continuation Patterns in Binary Options Trading
- What is the Zig Zag Indicator in Binary Options Trading?
- “Foreign exchange trading rules using a single technical indicator from multiple timeframes.” Deng, Shangkun, and Akito Sakurai. In Advanced Information Networking and Applications Workshops (WAINA), 2013 27th International Conference on, pp. 207-212. IEEE, 2013.
- “Trading fast and slow: Security market events in real time.” Hasbrouck, Joel. (1999).