Published On: Mon, Mar 25th, 2013

How to choose the right time frame

Binary options can be traded across a multitude of time frames and in a similar way to forex or any other trading. Choosing the right timeframe is as much a personal choice as it is a pragmatic one with some traders preferring the rapid swings of the sub-5 minute timeframes whilst daily swing traders prefer the longer swings of the larger timeframes. Binary options tend to attract short timeframe traders because they do not rely on the degree to which price moves to generate a profit. Regular binary options only need to close higher or lower than the strike price to generate a profit. Having said this, new features are being developed in the relatively new world of Binary options and these include novel investments such as ‘range’ and ‘touch’ options which may favour longer term swing-trade strategies.

For short term binary options the opportunities for profits are numerous and they are attractive because they can be traded in all market conditions. Traditional forex trading requires market activity and for price to actually move and continue moving in order to generate a profit before the spread is even taken in to account. Holding a trade for 60 seconds, even with a fixed-odds broker, requires the market to move fairly quickly in your favour during this period even for the best currency scalpers to make a couple of pips. Binary options, however, can be highly profitable with simply the smallest momentum to push the price above or below the strike and keep it there for one minute. In fact, one profitable trade per day trading 60 second options is about as short as a work day can get.

As mentioned before, the actual time frame that you choose to trade with binary options is perhaps more of a personal preference. This may come down to the strategy or style of analysis that you employ when deciding when to purchase the options. For those who have tended to trade larger forex or stock timeframes with a certain amount of success there is no reason why binary options cannot be applied to this. The key element in trading option is having a fair idea where the price will be at the point of expiry and whatever it does in between is generally irrelevant to the position itself. The preference to let the market take its time to get well clear of the strike price reflects a more conservative way of trading but binary options closing on a daily or even weekly basis can be equally or even more profitable using these methods.

The ability to expire your options early for less of a profit is something that some binary options traders incorporate into their strategy. Why wait for a possible 75% when you can consistently make 30% and reduce the stress at expiry time? Clearly, this will apply to those options in which you have the luxury of this feature. The 60 second options, whilst not being able to close early, have the additional benefit of momentum on their side which is perhaps more attractive to those who are looking to risk less on each investment and trade frequently throughout the day.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.