Originally developed for trading online Forex the multiple time frame strategy and binary options are a match made in heaven. The reason for this is that binary options are really all about the duration of each trade. With only two possible directions of movement for a trader to pick from (up or down) the duration of the trade has a huge say as to whether it will expire in the money. This is the big difference binary options have, in Forex an open position can remain open indefinitely, either losing or winning money for the trader depending on the value of the asset (and of course the size of his deposit margin). With binary options the only certainty (aside from knowing what your payout will be if the trade goes your way) is the exact time the option with expire. As a result it is paramount for binary traders (even more so than Forex traders), to monitor their chosen assets at a variety of different time frames. We have already mentioned the value of different time scales in one of our tutorials on charting platforms. Here we will explain precisely what binary traders should do in order to be able to capitalise on an asset's movement at various time scales.
The way this strategy works is by monitoring an asset's value at three different time scales. Each of these time scales should be a fourth the duration of the next one up. So 15 minutes, one hour and 4 hours would be a good example of multiple time scales to keep an eye on. Already you can see why this strategy is perfectly suited for binary options. With binary trades normally being quite short in relation to other kinds of trades this strategy allows you to get a wider picture of the rest of an asset's moves so as to be able to make a more educated forecast. With trades possible from anywhere upwards of 60 seconds this strategy can also be tailored to include the shorter options favoured by many traders. Although most charting platforms will not allow you to customise the duration of the chart beyond the preset times, there is no reason you can't adapt the strategy to monitor at 60 Seconds, 5 minutes and 15 minute time frames, which is close enough to be able to use this strategy for these shorter expirations.
The reason for monitoring at these different scales of time is to be able to observe the wider context to an asset's immediate movements. The way this strategy should be used is to regard the longest time frame as the overall trend. The shorter time frame should then be used to confirm this trend and the shortest one to place trades on. Basically the wider out you go, the more visible the support and resistance levels become, thus giving you some valuable information as to when exactly the right time to enter a position would be. If you want to play it safe then wait for all three time scales to line up with each other and to be telling you the same thing before trading. Having said this a pair of keen eyes is all that is really needed when observing these three scales and the shortest duration need not necessarily confirm what the longest one is saying in order to make a trader money.
What you do have too look out for though is similarities in she shapes of each graph. You should see smaller versions of the long-scale graph in the middle one and even smaller ones in the shortest time scale. One you have isolated one of these self-similar shapes, and especially if all three charts are confirming each other, then you will know the exact position on which to enter into a trade on the shortest time scale. Also just as waiting for all three to line up will give you as good a confirmation as anything else that you have isolated a trend, placing trades with expirations the same length as your shortest time frame also proves to be a good way to ensure you make the most of your risk capital. So a 60 second trade at the correct entry point once having isolated a miniature representation of the longest time-scale's trend, this should result in a winning trade for you. We know it sounds rather esoteric but it is far far simpler in practice than in explanation. So go try it out for yourselves!
George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.