There are many financial instruments available for trading nowadays. Yet, many traders still chose derivatives due to their relative simplicity, as various complicated calculations take place when trading in most financial markets.
These include, for example, stop loss calculations, risk vs reward estimations etc. Derivatives make these things easy and understandable for beginners as traders only have to predict whether the price will be higher or lower within a specified period of time. If your calculations were correct, there is a potential for profit, considering the accompanying capital loss risks.
Derivatives have an expiry time which varies depending on the broker. The expiry time usually ranges anywhere from 30 seconds up to several months. For example on Binomo, the shortest available expiry time is 60 seconds.
The benefits of a short expiry time is the ability to grow your experience in trading with a demo account at a faster pace. However, this also means there is a chance of faster losses too. While teaching my students, I’ve mentioned many times that my preferred Binomo expiry time is at least 5 minutes. And now I’ll try to explain what are the reasons for such a trading approach.
Have a look at AUD/USD 1M chart below, where 1 candle equals 1 minute. If you look at the latest 5 candles, you will notice that trading price was within 1 pip rage with a minimal movement of 0.0001 points.
If I would have taken the trade with 1m expiry, I’d be trying to predict if the price will be higher or lower in just 60 seconds. Additionally, there is a lot of market noise in lower time frames. This means that the clarity of the trend is very little, making it harder to determine market direction. Market noise decreases with higher time frames, thus making it much more predictable and suitable for potential profit-making.
Market noise on low timeframes does not depend on the trading platform, as it is a common price behavior in the financial markets. Therefore, analyzing a higher timeframe or even multiple timeframes will substantially increase the chances of success.
Trading higher time frames on Binomo
As I have already mentioned, trades should last no less than 5 minutes. Perhaps a good advice is to use proportional numbers of candles in relation to the time interval used for your analysis and/or trading.
For example, if you analyze a chart on a 1M interval, the expiry time should be set to 5m, which is equivalent to 5 candles. But if you analyze a chart on a 15m interval, then using 5x15m chart candles is more appropriate. This would make it at least 1H expiry. This formula can be adjusted depending on the timeframe you chose to trade in.
Higher time frame trading helps reducing market noise and increases the potential of a larger price movement. It is always easier to predict the market when the direction is more clear and chances of big price movements happening are higher.
But there are more reasons to why longer expiry times can be a way to go. In trading, human psychology plays an important role. When trading on financial markets, emotional pressure can be very strong and depend on the level of your risk-taking.
Financial markets trade in cycles and can be either trending or consolidating. The dominating part is the consolidation phase or, in other words, a sideways move.
During consolidation “CALL low, PUT high” approach seems reasonable. Yet the 1M expiry time might not be enough for the price to reverse or make any sort of movement. The chart below clearly shows that the price can stay nearly at the same spot for 2 or 3 candles.
Use a 1m chart for finding an entry signal with a 5 or even 15m expiry time. The same approach can be applied to all other charts, whether you are using a 5m, 15m or a 1h timeframe.
Among the derivatives trading community there is a belief that some brokers can manipulate price behavior on lower time frames. There is no proof of this, but if it’s true, you are very likely to lose money while trading using 1m expiry.
If there are broker manipulations, it will take you quite some time to notice them, not to mention the price you might pay for such a discovery. So why take such unnecessary risk when you can simply trade using longer expiry time?
Exceptions for short Binomo expiry time
Having warned you about the risk of short expiry times, there are still instances when 60 seconds expiry can be potentially profitable. There is one case that I can think of: when the market is clearly trending. There are multiple indications of an ongoing trend. Here are just a few of them:
- Volatility and trading volumes are increasing.
- Breakout of the support or resistance.
- Candle bodies are becoming larger.
- Price produces higher highs and higher lows in an uptrend. In a downtrend lower lows and lower highs.
Along with the above-mentioned clues, you can use trading indicators, such as the moving average, the oscillator or your own choice.
In order to capture an emerging trend or pursue an already established one, you need to closely monitor the market. Because of short timeframes changes can happen very fast. But you can set yourself a specific time for trading. For instance, choose a time when a trading session begins or when the financial news are released.
Obviously the same can be applied when you trade on longer timeframes.
What is your preferred expiry time? Have you traded 60 seconds expiry on Binomo? Please share your experiences in the comment section below.