How to determine the expiration date of a binary option?
We've spent quite a bit of time on the concept of binary options and their possible options provided by brokers. We have learned how to select the right type of binary option for this or that market, and we are actually ready to proceed to the trading process. To make the first trade we have the smallest thing left - to think of a suitable expiration time, with which we will work.
What is the expiration of a binary option?
Let us remind you that expiration - is the end of the contract term, that is, the time at which, depending on the type of binary option, its main condition must be met.
Expiration times can be quite different. Most often from a month or more to 1 minute. It is clear that depending on your trading strategy or market situation you can choose any suitable period for the given moment, the main thing is to understand when and what term is the most suitable.
Expiry time depends on the strategy
- So, if your long-term strategyand you are more suited to the investment type of trading, then, obviously, the term of the contract should be chosen appropriate for the event on which you are counting, for example, the end of the QE program in the U.S. according to your forecasts. Usually, options of a month or more are used in this case.
- If you are more focused on medium-term tradingIf you have a position based on technical analysis and "catching" the trend movements, then the best thing for you would be a position for 2-3 weeks or so, maybe a little less, depending on your forecasts.
- For short-term tradingAccording to ForTrader.org experts, the best expiry time is binary option in several days - up to one week. At the same time, as traders often do, do not leave the contract for the weekend, because sometimes after the market closes, there are dramatic changes in conditions, significantly affecting the opening of the instrument quotations on Monday.
- For intraday tradingIn a day trade, which is usually described as intraday trading, it is logical to choose an option expiration time from an hour to a trading day, when the day's activity subsides and a flat movement begins. By evaluating the prospects of the day, you can predict how it will end, or by evaluating the chances of news coming out, you can predict the movement right after it.
- Ultra-short trading is characterized by trading within an hour or even within a few minutes. By analogy with om we can call such trading as pipsing. It is the most dangerous type of trading, because it is necessary to take into account sharp short-term fluctuations in quotations and market noise.
How do I choose the expiry time of my binary option?
What is the expiry period of a binary option to choose for a beginner trader? Note that usually, in search of quick money, and caught up in the excitement, traders choose a time of 1 to 5 minutes. This strategy seldom profitable for a long period of timeThe same is true for the roulette game: a series of wins will be followed by losses. Usually speculators with experience recommend using intraday terms: hourly or daily, that is, those in which you can expect something specific and not become a hostage of "rollback not in time" and your own emotions.
Another way to choose the right expiry time is to calculate the number of bars you are waiting for a certain market movement, based on technical analysis. For example, candlestick patterns are worked out for 2-4 candles, trading on the breakthrough or rebound from the line - from 3 to 10 bars, depending on the activity of the trend, the trend movement should be worked out for a little longer - for 10-20 bars of the selected period. Knowing this and using the technical analysis, you can always calculate the right expiry time for your binary option.
Regarding fundamental analysisAs we said above, you need to look at the potential reaction of the market and its duration. For news it is one, for more serious changes it is another.
Anyway, having at least a little experience in trading on the stock or currency markets, the trader finds a suitable strategy for himself. It is the one that ForTrader.org magazine recommends adapting to work with binary options and relying on it when choosing the expiry date of a binary. With a little practice, you will realize that the difference in trading principles is not great.