There is a controversy between binary options traders about what expiration date to choose when looking for a direction for your trade. The thing is that the expiration date depends very much on the time frame one is using. I mean, it makes no sense to trade end of day expiration date if you are picking your entry point/striking price from the 5 minutes time frames. The same is true when trying to trade sixty seconds expiration dates when you are looking on the daily/weekly/monthly charts. It is a non-sense. Picking the right expiration date is vital when trading binary option and therefore one should pay the most attention to this.
Binary options trading, and as a matter of fact trading in general, is based on finding important support/resistance levels and then choosing the call/put options, basically the direction, and finally the expiration date. Knowing what is the big picture on the financial asset you’re trading is vital and makes the difference between a successful trader and one that still struggles. The biggest time frame brokers offer for analyzing is the monthly chart and the way to go is to look on the monthly chart for patterns that offer a glimpse into what is possible to form. For example, look for triangles that are about to break and then on a retest of the b-d trend line we should look into buying call or put options depending if the triangle is bullish or bearish.
Look for Channels or Trend Lines in Longer Time Frames
Another example would be to look for trend lines or channels to form on the longer time frames and by the time the channel is broken to look for continuation in the opposite direction in the eventuality that the channel is going to be retested. In terms of Elliott Waves Theory there is a so called top/down analysis that is being made and this implies counting waves on the monthly chart and after the analysis on that time frame is completed, moving on the lower time frame, namely the weekly chart, and then take it from where you left on the monthly chart. Then going on the daily chart and so on and the top/down analysis is completed by the time the 4h and hourly charts are counted as well.
No one is trading the monthly and the weekly charts but taking the information from those time frames and coming down to the daily and lower charts we can say that we’re using information from the longer time frames and trading on the smaller ones. From the daily chart I would pick only end of week or month expiration dates for any option as imagine the price is consolidating at the very bottom of a channel on this time frame. Until consolidation is completed it is virtually impossible to know in advance the moment of time price will move, even if you know the direction. And in binary trading is not the direction but the expiration date as well.
Using Longer Timeframes in Conjunction with Shorter Ones
Longer time frames can be used in correlations with smaller time frames as well in the sense that a longer time frame resistance can be solved by going on the 4h and hourly chart, picking an oscillator and they looking for divergences price and oscillator are forming. This has the potential of giving the perfect striking price for your option but also allow a smaller expiration date than otherwise needed.
The key in doing all the above is to have access to a trading platform to do your analysis and the Metatrader is the most popular one. So go over the Internet and find forex brokers that are offering demo accounts and open a demo account to have access to the Metatrader trading platform. Then open a chart on the currency pair interested in trading and put that pair on the following time frames: monthly, weekly, daily, four hours and hourly. Basically you are doing a top/down analysis picking on each and every time frame the information that was left on the previous time frame.
The key here is the monthly chart as brokers are not offering historical prices back in time but this doesn’t mean that there is no chart. So make sure you trade only the patterns on the monthly chart that can be assumed and imply a forecast on the right side of the chart. Otherwise you’ll end up chasing a pattern that is not really there given the fact that there is not enough information on the left side of the chart. After all, this is what trading is: forecasting on the right side of the chart based on the info on the left side.
The two recordings that are coming with this chapter in our Binary Options Academy are dealing with setting up the bigger time frames in order to find out how to trade binary options on the smaller ones taking into account the info obtained on the bigger picture.