Time Frames

on these questions:

1. What are time frames?

2. Why should I use time frames for my trading?

3. How do I

that provides them with all relevant information, but nothing more and

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If you discover a continuation pattern, the breakout will occur when the asset completes the
formation and resumes the previous trend. At this mhboment, many traders realize that the
market has resumed its original direction and that x

How does my time frame influence hg the connection between the time frame of a
chart and the expiration time you

invested in will be long vc as this connection trn a strategy following trends.

The best rule of thumb we can give you is this: never use an expiry that is longer than the
event you want to trade. Estimate the number of periods the event will take, then multiply this
number by the length of a single period, and you get your maximum expiry.

To trade a swing in a trend, look at past swings. If each of them lasted 10 periods on average,
multiply 10 by the length of a single period. For a chart with one-hour periods, your
maximum expiry would be 10 hours; for a chart with 5-minute periods, your maximum
expiry would be 50 minutes. If the movement you want to invest in has already started, you
should subtract the time that has already passed.
Use this rule of thumb to get your maximum expiry, and you should be on the safe side with
your trading.

For trades of other movements, things are a little more complicated. To estimate which
expiration time you should use for your current trade, you have to estimate the number of
periods you think the movement you want to invest in will take to develop. After that, you
simply multiply the number of periods with the time frame you are using.

Let us assume you are trading a breakout on a 15-minute time frame, and you predict that an
asset will break out within the next candlestick. This means you would use a 15-minute
expiration time for the binary option you want to invest in.

If you are trading a continuation pattern and are looking to trade a movement on a 5-minute
time frame, take a look at all the preceding movements in the pattern. How long did they take
to develop?

If each movement took somewhere between 15 and 20 candlesticks to develop, it is

reasonable to assume that the current movement will be no different. (Some traders use an
indicator such as the bandwidth to double-check this prediction, others simply take it as it is.)

If the current correction has already moved 3 candlesticks, you know that you probably have
somewhere between 12 and 17 periods left. Multiplied by 5 minutes per period, this gives
you somewhere between 60 and 85 minutes. Therefore, you should try to find an option with
an expiration time of one hour or 75 minutes.

How does my time frame influence how much I should

invest?
As we already mentioned, shorter time frames feature a more erratic market environment that
makes predictions more difficult. Even if you are able to trade profitable in such a market
environment, you should expect to win a lower percentage of your trades than on longer time
frames. Consequently, you should reduce your investment per trade.

Managing your investment per trade is important to survive losing streaks. With no financial
investment, you will win all of your trades. There is always a chance for a loss. Therefore,
you have to expect to lose three, four, or more trades in a row.

The exact size of the losing streak you should prepare for depends on the riskiness of your
strategy. With a risky strategy, you have to prepare for longer losing streaks. Consequently,
you should expect longer losing streaks on shorter time frames.

The tool to prepare for losing streaks is a money management strategy. With a good money
management strategy, you define a fixed small percentage of your total account balance that
you invest on every single trade. Ideally, this percentage is less than 5 percent. This means,
with an account balance of $5,000 and a money management strategy that invests 2 percent
of your overall account balance, you would invest $100 in your next trade.
The key to successful trading is to invest less on shorter time frames. If you invest 4 percent
of your overall account balance on a one-hour time frame, you should reduce your investment
to 2 percent on a shorter time frame.

Generally, it is better to err on the side of caution. If you invest too little, you will make less
profit, but that is something you can correct easily. If you invest too much, you might end up
broke, and there is no coming back from that. Always remember: to make up for a 50 percent
loss, you have to make a profit of 100 percent; so keep your losses small and you will help
your net profit more than by increasing your returns slightly.

How does my time frame influence the strategy I trade?

Because the market moves more erratic on short time frames, it is more difficult to trade
strategies that require long-term events. Most notably, trend followers will find it difficult to
find suitable long-lasting trends on short-term time frames.

For traders of such strategies, it might make sense to switch to trading a more short-term
focused event. Often, this only requires a minor tweak to their strategies. Traders that used to
follow trends as a whole can switch to trading each swing individually, and they will have
found a more short-term trading alternative that is based on the same basic phenomenon.
Most strategies allow for a similar tweak that adapts them to shorter time frames.

Generally, shorter time frames work better with strategies that trade short, simple events.
Simple candlestick formations will work better than continuation patterns, and volatility
indicators will work better than long moving averages. Changing your trading strategy from
one of these examples to the other should be simple. Continuation patterns are a part of
candlestick analysis, and by trading simple candlestick formations, you will stick with the
same trading style while only changing the event you are trading. Similarly, the switch from
moving averages to momentum indicators helps you to stick with trading technical indicators
and only switches the indicator you trade.

Such tweaks require minimum effort on your part, but they can make a significant difference
in your earnings.

Are there limits to using time frames for binary options?

Time frames are a very helpful tool for your binary options trading, maybe even the most
important one. They do, however, also have their limits. There are some time frames you
should never trade with binary options and some that are of limited usefulness.

The most obvious limitation is that time frames of days, weeks, and months are impossible to
trade with binary options. In a price where one candlestick aggregates the price movements
of one month, you can easily see the market movements of multiple years or decades. Since
binary options feature expiries of only a few hours, such long time scales are incapable of
helping you make good decisions. The same applies to charts with a weekly time frame.

Daily charts can be important to understand what the market is doing and which big-picture
technical events will influence the price today. You should, however, avoid trading daily
charts directly. When you find a significant, switch to a shorter time frame and trade the
event from there.

Shorter time frames can be of similarly limited usefulness. One-second time frames provide a
much too erratic market environment to trade effectively. Even the shortest expiry you can
find with binary options – the 30 seconds expiry of short-term options – is too long to make
money. Other binary options types usually start their expiries at 5 minutes, which is even less
suited for this trading environment.

We generally recommend staying away from time frames shorter than 30 seconds. Shorter
time frames might seem attractive because they promise an almost endless amount of trading
opportunities, but these opportunities usually look much better than they are. They are the
result of random market movements and have no power to indicate future prices. By trading
them, you are likely to lose too many of your trades to turn a profit.

Stick with time frames from 30 seconds to one hour for your trading. Stay away from shorter
time frames and use longer time frames for additional diagnostic purposes only, but never
trade them directly. Then you should be fine.

Conclusion
Time frames are a powerful tool that can improve your trading significantly. They can make
your trading more profitable and less risky, which is a unique combination of advantages that
few other tools allow.

There are two important things to understand about time frames:

1. Different time frames influence each other. To make the best predictions on your
current time frame, you have to understand how it relates to longer and shorter time
frames and if these time frames limit the predictions you can make or allow for new
predictions you are unable to recognize on your time frame alone.
2. Shorter time frames provide more trading opportunities but also feature a more erratic
market environment. To learn how to deal with these environments, we recommend
you start by trading longer time frames and work your way down to shorter time
frames.

When you understand these two main points, you can deduct most of the other points, for
example how to manage your risk on each level and how long to choose your expiry.

If time frames seem a bit confusing at first, do not worry. It will not take long for you to learn
the basics and get an intuitive feeling for the different time frames and how they influence
each other. Start with the time frame that seems the most natural to you right now and work
your way through the other time frames.

Time frames can improve your trading significantly, and every serious trader should take the
time to learn and understand them.