Most traders come to the conclusion that binary options trading is somewhat easier than classic Forex trading. However, there are a number of complexities in binary options trading that are associated with with a choice of option expiration dates, because a mistake made when choosing, most often leads to losses even with the correct analysis and well-planned work of the trader. Let’s try to clarify the issue of determining the expiration dates when trading binary options.
Dependence of the expiration time of a binary option on the trading style
- When trading binary options long-term (from a month or more) the process of determining the expiration period does not present any difficulty. It is determined based on the timing of events expected in the future. This can be the end date of currency intervention, changes in the rate of monetary policy by the Central Bank, and so on.
- In medium-term trading (from a week to a month), you should focus not on fundamental economic events, but on the results of technical analysis. In this case, the optimal choice would be a period of two or three weeks, that is, the average lifetime of a medium-term transaction.
- In short-term trading (up to 1 week), it will be logical to determine the expiration time within a few days. There is one significant point here – it is recommended to finish trading binary options before Friday evening, since some events may occur over the weekend that seriously affect the market picture.
- For intraday trading With binary options, the optimal choice of the expiration period is the end of the trading day, since all the fundamental factors have already been played out for today, the market is entering a phase of stagnation. When trading faster options, the end of the trading hour should be chosen as the reference point for expiration dates.
Choosing a period for trading binary options
So what period should a novice trader choose for profitable binary options trading? Taking into account the fact that short-term options trading, as a rule, is accompanied by the absence of significant trading information, as well as a significant share of excitement, the most optimal choice would be binary options, the expiration date of which is not earlier than the end of the trading day.
To achieve more profitable and stable results when trading binary options, it makes sense for a novice trader to try medium and long-term trading.
Using ultra-short time frames in binary options trading novice traders are highly discouragedas they can lead to the formation of a gaming attitude and financial losses. The use of tick options by newbies will generally be similar to playing in a casino.
Dependence of the signal processing time on the trading tactics
Along with all of the above, it can be noted that traders often calculate after how many bars an open deal will begin to be processed, which also very well allows you to choose the expiration time of the option. Roughly speaking, for this you need to estimate how many bars will be needed to implement the plan, multiply it by the timeframe used, and then buy an option for the resulting time.
It should be remembered that a certain trading tactic provides for a different time required for the trading signal to be processed:
- The fastest for working out a trading signal is trading using candlestick patterns – 2-3 candles.
- Trading on a rebound from the level also implies fast expiration dates – 3-4 candles.
- Trading binary options using the breakout of certain levels requires a little more time for the signal to work out – up to 10 candles.
- The longest period is trend trading, since a possible correction has to be taken into account. In this case, the expiration period of the options should be selected within 20-30 candles.
- When trading using fundamental factors, the expiration range of options is very wide. For example, when trading on news, it can be several minutes, when trading on targets set by the Central Bank – up to a year.
Summing up, you can see that expiration dates of binary options can be any… However, before you buy an option, you need to answer your own question – why are you buying an option for such a period? It is very important to understand that the timing of options also depends on the style and tactics of your trading. A correct understanding of these relationships will be the key to your stable and profitable binary options trading.