Expiry Time, Time Frame. All You Need to Know
If you’re reading about Binary Options you probably know already how profitable they are… and easy… hmmm, are they really that easy or is this just something the brokers want us to believe? Let’s be honest here and call things by their proper names: no form of trading in the financial market is easy. It might be simple, but it’s a big difference between simple and easy. Don’t worry, with time they will become both simple and easy but it takes a little practice so let’s see what we can do about it.
Put Time On Your Side
Right from the start I can tell you that, Binary Options are not complicated and there’s no doubt about that: choose the expiry time, investment amount, predict a direction, and place the trade. The mechanics are pretty simple, but each choice raises questions. What can make the difference between a win or a loss is the expiry time, but choosing the right one can sometimes be the most difficult part. Let me explain: if the trader has recognized a down trend on a certain asset and places a Put, chances are the trade will be successful. But if a retracement higher starts just after the trade was placed, two scenarios emerge: the first one shows the trader happily smiling because he chose a long enough expiry time to allow the retracement to end and the trend to resume. Unfortunately the second scenario shows a trade that finished Out of the Money just because the trader didn’t allow it enough room to develop before the time expired. Here’s a visual representation of what I explained above:
Above we have a 5 minute chart. Assuming that we place our Put at point 1, if we choose a 15 minute expiry (that’s point 2), the trade will end up Out of the Money so we managed to lose money although we got the main direction right. If we would have chosen a 60 minute expiry time (point 3), the trade would have expired In the Money and it would have brought us the full payout. You can clearly see how making the right decision about time frames can be crucial for the outcome of a trade.
Fortunately, some Binary Options brokers provide traders with a tool to avoid losing trades just because they didn’t make the right decision about the time frame they used for expiry. I am sure you heard about it, it’s called Roll Over (some brokers have different names for it) and it allows you to extend the expiry time of your option. So if you feel you are right about the main direction but price is stalling and you are in danger of losing the trade, it’s better to use this tool because sometimes it can make the difference between Out of the Money and In the Money.
A Few Tips for Choosing the Right Expiry Time
Always make sure you allow the trade some room to breathe and go for the longer expiry time. If you are on the right side of a trend, your chances are higher with a longer time frame.
Correlate the expiry time with your strategy time frame. In other words, if you’re trading using a strategy that uses the 5 minute chart, choose an expiry time of at least 15 minutes. If the strategy is using 15 minute charts, go for at least an hour for the expiry time.
Know your strategy and know approximately how fast price starts to move in your desired direction after the signal was given.
Gauge the current market conditions: if the market is volatile and moves very fast, there’s no need for a long expiry time. Slow, ranging markets require a longer expiry time sometimes.
Hitting the Nail on the Head
Binary Options traders need to be very accurate with their entries because unlike Forex traders, we also have time working against us. The perfect trade can turn into a loser if we forget to take into account this very important factor. Choosing the right expiry time requires practice and attention to detail but it can be a very powerful ally because it can also turn a losing trade into a winner. If you learn to use it, your Binary Options trading will truly become simple and easy.
Thanks to ThatSucks (former BinaryOptionsThatSuck). Contributors!
Adam Grunwerg has been trading binary options for a few years and has worked with Hamish Raw (author of Binary Options: Fixed Odds Financial Bets, 2008) to provide articles, which explain advanced binary options strategies and Greeks at BinaryOptions.com. Click here to visit his website for more information.