Multiple Timeframe Strategy in Binary Option

Multiple Timeframe Strategy in Binary Option

Submitted by adil on Wed, 05/28/2014 - 19:07

What Time-Frames Work Best for You?

Implementing this strategy to trade binary options on FOREX currency pairs requires the trader to monitor the asset price movement across various time frames. There is no definite rule that connotes how many time frames should be used for optimum results. There are, however, guidelines that indicate three unique time frames are sufficient for determining the best opportunity to trade. The Rule of Four should be kept in mind when selecting appropriate time frames, because less frames will result in insufficient data and too many time frames will complicate technical analysis.

Types of frames:

Medium-term time frame: You must select a medium-term time frame which should be equal to the minutes you will set as your expiry time. Meaning, this time frame will be 360 minutes if you usually hold your trades for 6 hours (6 x 60 = 360 minutes).

Short-term time frame: By The Rule of Four, the short-term time frame should be 90 minutes, which is the medium-term time frame divided by four (360 / 4 = 90 minutes).

Long-term time frame: The same Rule of Four suggests the long-term time frame should be 4 times the medium-term time frame, which in this case becomes 1440 minutes – 24 hours (360 x 4 = 1440 minutes).

This guideline will help in using the charts with most precise short, medium and long time frame for maximum in-the-money trades.

Trading with the strategy:

Analysis should be done by moving from chart with long time frame to the chart with medium time frame, and in the end making trades on the chart that has short time frame.

Analyze long-term time frame chart: This chart should only be used to determine the general price trend of the asset by looking at the bigger picture. You must not commit to a trade before evaluating the other time frame charts.

Analyze medium-term time frame chart: After getting a general idea of the market, it’s time to turn attention towards this chart because it will help considerably in formulating the best trading plan. The spikes in general trend will become clearer, that will enable the trader to spot better trading opportunities easily. Now one more step is required before starting trades.

Analyze and trade on short-term time frame chart: Only the chart with short time frame must be used to make trades. Hence time has come to narrow your concentration and find the most suitable entry spot and make a trade. This trade must be made in consideration with the general price trend determined through the long time frame chart.

The analysis style of moving from longer to shorter time frame enables the trader to trade successfully with shorter expiry times on FOREX currency pairs. It helps traders avoid the market fluctuations affecting their trades by remaining in sync with overall market movement. This strategy is inherited into binary option trading from the systems of FOREX trading. This trading strategy also proves wrong the misconception about binary option trading that analysis on longer time durations do not have any positive impact on trades with small expiry times.