Choosing the Right Binary Option Expiry – The PROS Way

How I Choose My Trade Expiry? The PROS Way!

Bogdan – Expiry Is It? Huge Problem, Help Me!

What is the best expiry time? This question is on everyone’s lips ever since binary options trading begun. The reason why people are so eager to find an answer is because knowing it would mean you found the Holy Grail of Binary Options. Why can expiry time be the Holy Grail? Well, because with the right expiry almost any trade can be In The Money, even if you close your eyes and click on Call or Put, doesn’t really matter which one. So do you want the answer to the million dollar question? Yea? Good – keep reading.

 

 

My Motorcycle and Another Guy’s Speedometer

Ah, but I cannot give you the answer straight away and since I love telling stories, you’ll have to read one of mine before finally receiving the Holy Grail of Binary Options, so here we go: I love my motorcycle – as probably every motorcycle owner does – I love riding and I love talking about motorcycles. What I don’t like is a certain question which usually comes from newbies… maybe that’s the wrong wording; it’s not that I don’t like this question, but I don’t know really how to answer it in a manner that will satisfy the guy who’s asking it. Here it is: How fast should I drive? Well, I know exactly how fast I should drive, but I cannot tell others how fast they should drive. I cannot give them a number on the speedometer because there is only one correct answer: You should adapt your speed to road conditions. However, this answer doesn’t satisfy the newbie who thinks I have to give him an exact number… the Holy Grail of motorcycle riding. If I tell him he should drive at a speed of 20km/h, that’s correct, if I tell him he should drive at 120 km/h, that’s also correct. If you are passing by a school, drive at 20km/h or even slower; if you are on the highway, drive at 120 km/h. But also 15 km/h and 90km/h are correct. Then again, if you are driving on a country road, maybe you should use 30km/h, or 40, or even 10 if the road requires you to. If you are driving on a wet road, slippery road, at night, on a road with twists and bends, in low visibility conditions, the answer to the question “How fast should I drive?” changes. And now you’re thinking you had enough about motorcycles and you want to get to the binary options part. Well actually friends, I’ve been talking about binaries all along. Yea, I know only some of you understood so this is for everyone who didn’t get it: the speed at which you should drive your motorcycle is actually the expiry time you should use. Please don’t take it literally and don’t use the numbers above for expiry.

 

 

The Answer

The thing is that just how you should adapt the speed of a vehicle to road conditions, you should adapt your expiry time to market conditions. The possibilities are almost endless but here are some likely scenarios: If I am trading in a fast market I can use a 2 candle expiry or even one candle (depends on how fast the market is moving). If I am trading news, then I use an ultra fast expiry of 1 or max 2 candles on a 1 minute chart. If I am trading in a sluggish market then I can go up to 12 – 24 candles, depending on how the chart looks. If I am trading a bounce off of an S/R (support/resistance) level, then I can use a short expiry time of less than 3 candles. If I trade a break of an S/R level then I can use an expiry of up to 24 candles because price could return to re-test the recently broken level. If I am trading in the direction of the main trend which has been going for quite a while (yes, of course “quite a while” is relative) and regular divergence is present then I will probably use a short expiry time of 3 – 5 candles because the divergence could cause the trend to reverse so I want to be out quickly. If I am trading in the direction of a trend that has just begun I will use a longer expiry (12 – 24 candles) because a retracement might be coming up and I want my trade to “survive” that potential retracement. If I am trading after a retracement but in the direction of the trend, I can use a relatively short expiry of up to 5 candles. If I am trading a reversal I can use either a short expiry of 2 candles or a long one of at least 24 because price might make another top/bottom before finally reversing… it all depends on the situation and actually I might totally disregard all numbers above if the market requires it.

 

 

Here’s My Question to you

It all comes down to how well you can read market conditions. Do you know when the market is ranging or when it is about to start ranging? Do you know what tested S/R is? Do you know what potential S/R is? Do you know how to recognize major support and resistance as opposed to minor support and resistance? Do you know how to make the difference between a trend and a single impulse of the market? Do you know when a trend is relatively overextended? Can you make the difference between a real break and a fake one? Of course some of the things above cannot be predicted with 100% accuracy but if overall the answer to my string of questions is Yes, then you already know the answer to the million dollar question “What expiry time should I use”: You should adapt your speed to road conditions. If your answer is No, then I cannot answer the said question in a manner that will satisfy you.

 

 

 

The Geek: Measure Your Charts To Choose The Best Expiry

Choosing the right expiry is one of the hardest, and most important, aspects of trading binary options. It is one thing to know with certainty that the market is going to move in one direction or another, but it is something else entirely to know exactly when, how far and how long that move will last. It is the when, how far and how long that makes trading so difficult and why maintaining a profitable win rate is so challenging. I’m not here to tell you any kind of super secret method for accurately predicting expiry 100% of the time, that would be foolish because it just isn’t possible, but I am here to reveal to you the method I have learned and how you can apply it to your trading.

 

One of the very first thing I learned on the very first day I was introduced to technical analysis was how to measure a chart. More importantly I was told that I needed to measure my charts and to go back over time and measure each and every single aspect of my strategy, system and analysis methods that I could. What does this mean? First it means that you have to have a well defined strategy. You don’t have to have a complete system in place as trade size and money management have little bearing on choosing expiry. What you need to be able to do is identify and define what an entry point is in your strategy. Is it a stochastic crossover? Is it a MACD crossover? Is it an RSI signal? It could be based on support/resistance, moving averages or any other form of analysis. The point is, you need to know what it is so that you can go back on a chart of historical price action and look for those signals.

 

 

How Do You Measure A Chart?

At this point in my trading career I have been able to distinguish between strong signals and weak signals within a trend, a possible areas of short term reversals. With this in mind I am able to go back on a chart and look for all of the times in which the indicators match up with my rules. The next step is to count how many candle sticks or bars it takes until the signal results in a profitable move. Notice how I say candle sticks or bars, I say it this way because your time frame does not matter when using this technique. If you trade on the daily charts as I do then a move of 5 bars is equal to 5 days. If you trade on 1 hour charts 5 bars is 5 hours, if you use 15 minute charts 5 bars is 1 hour and 15 minutes and so on and so forth. I like to give myself the benefit of the doubt so I always make sure that when I do this the price move I am counting is fully realized and well past my entry.

 

Now, after you have gone through and identified all the signals you can, and measured how many candle sticks it takes for the move to result in profits it is time to take some averages. In my case I would take an average of the all the weak trend following signals, an average of all the strong trend following signals and an average of all the potential reversal signals. These averages then become my target expiry. For instance, I know that on average it takes about 4 bars for a strong signal to result in profits, and up to 8 days sometimes for a weak one. This doesn’t mean that when I enter a trade that the market always moves to match my expiry but on average I know how long to expect it a move to take. The example below is of the Russell 1000 with 60 minute candlesticks. I have highlighted entry points based entirely on price action and Fibonacci Retracements. Starting from the bounce at the 1010 level each and every signal moves into the money immediately and is well within profitability by the second candle. This would result in an average of 2 candles, or 2 hours, for signals based on this method and is now a target for expiry when trading the RUI on hour charts.

 

 

example of geek's expiry choosing

 

 

 

Okane – My Guide to Picking Profitable Binary Option Expiry

Choosing the correct expiry is a struggle each trader faces on a daily basis. After all, we are trying to set an expiration date on something that will… or rather might, occur in the future. It is needless to say that forecasting the future is challenging. Every trader has their own method for setting the best possible expiry. Their analysis are based on various things, such as experience, different indicators and time frames. I can’t say whether one method is better than the other but what works for me could work for you as well – with some practice of course! Before we begin, I want to describe my trading. I am a short term trader so I focus on making trades with 10 minutes up to 30 minutes until expiry. To do this I use charts as low 5M or lower and focus on the heavily traded forex pairs.

 

 

How I Pick My Expiries – The 3 Steps

Volatility:

The first step in choosing the best possible expiry is getting to know the asset you wish to trade. Highly volatile assets often need less time to move in the desired direction than a low volatility asset. Hence, an assets volatility provides good information on how much time each trade requires. You can study volatility by measuring the lengths of the candlesticks, among other things. Huge candles indicate that volatility is high. Most major currency pairs are volatile in short tie frames and perfect for day traders like me. You can learn more about volatility in binary options in the school section.

 

Where

In the next and very important step, you should carefully analyze all time frames. I always start with the highest time frame available and work my way down. The goal is to identify areas where it is more likely that buyers or sellers will get into action and move the price! This is also known as support and resistance. This information is helpful for approximating how much time your trade needs by the time frame in which the support or resistance exists. Higher time frame support or resistance will need a longer amount of expiry. I mentioned before, you can’t predict with certainty what will happen in the future, but history often repeats itself. For this reason, you will have some idea about how much the buyers and sellers will move price, by how many pips and how fast.

 

When

My third step involves the clock and it is crucial when it comes to choosing my expiries. Before I understood how to use the time to my advantage I would often find my trades going against me right from the start, or going OTM with just minutes left till expiry. This is because forex pairs often behave according to a pattern determined by the clock. To find a significant time pattern you need to observe an asset over a period of time and mark significant times such as market openings or closings. It is fully possible to back test this by going through different time frames and locating areas where price action changed direction or created a retracement in synch with this pattern. What I do is count and analyze the candles in these areas to learn how much time would’ve been needed for a trade to finish in the money and use that to help predict my expiry in the future.

 

 

Put it All in Action!

Allow me to summarize my 3 step method for choosing an expiry.

Step 1: Familiarize yourself with your favorite asset and learn how volatile it is by measuring candlestick lengths and the speed at which price moves. Use this to get an idea how much you can expect it to move each day in the future.

Step 2: Analyze all time frames to find key areas where buyers or sellers have challenged the price. Count the number of candles prices moves each time it bounces from support or resistance.

Step 3: Back test and find out how market time tables affect price movement and use those to predict future movements.

 

 

One Expiry to Rule them All

I choose to let the “market makers”, the buyers and sellers, show me their expiries instead of guessing or using my indicators. The idea is to allow my strategy to adapt to the market and not the other way around. I’d like to say that there is one expiry to rule them all but you can’t simply can’t choose base on static rules. This is a common newbie mistake that will have devastating effects on your balance. The price itself is a great indicator, it will tell you what it wants to do, where it wants to go, all you have to listen. Neglect the price and you will be the one who ends up paying. No matter what you do, sometimes your expiry won’t work and that is a part of the game. You just can’t win them all. Luckily though, there are ways to avoid some of the losses. For example; don’t trade during high impact news releases and during times when volatility isn’t acting “normal” (decreasing, stands still or too jumpy).  

 

 

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