Choosing the Correct Entry and Expiry Time

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Video Transcription

Welcome to the fifth lesson of the Day Trading Binary Options course. In this course, we will teach you why it is important to choose the right entry and expiry time for your binary option, if you want to be a profitable trader over time. First of all, the most important thing is to have a winning strategy and to be completely disciplined when trading it.

The second most important thing to understand when it comes to binary options training is to know which expiration time to choose for our options.

The expiration times of our options will depend on the time frame we are analyzing the price action.

If we are analyzing on the one minute chart to the five minute chart, we will choose to trade a 60 second options to the 50 minute expiration option. If we’re analyzing the 15 minute to the 1 hour charts, we will choose to trade the hourly to the end of day expiration options. And if we are analyzing on the four hour and the daily charts, we will choose the end of day and perhaps even the end of week expiration options.

Choosing the correct expiration option is very important because, if you don’t, the chances of your options expiring out of the money are much, much bigger. Why don’t we go to a chart and let me explain this to you.

Okay, so here’s the four hour euro/US dollar chart and we will only focus on the euro/US dollar because we are not trying to learn a strategy per se. We are trying to define why it is so important to choose the right expiry time for your options.

Now, let’s say that we are trading with a strategy that only uses previous levels of support and rejection of those levels. Let’s imagine that we are analyzing on the four-hour chart and we notice that we have here a level of support that was tested. The last level of support tested was this one, but before it was tested as resistance. And this spikes low give us also a sign of rejection as well as this stake-out here when it was tested as resistance. So, this is a very crucial level on the euro/US dollar, so we draw it out.

Now, let’s imagine that this strategy only tells us that you can trade when the price either bounces off this level of support, or breaks through this same level. On this example, price tested this level of support and then we had a bullish engulfing candle. This means that we have a long setup and this means that we can actually buy coals on this currency pair using this strategy.

Now, here comes the question. What expiration time are you going to choose for your options? Since we are using the four hour chart, let me thicken this out for you, since we are using the four hour chart, each and every one of these candles is equal to four hours, okay? So, when we have the signal, we have one, two, three, four, five, four-hour candles of indecision before we get this spike high.

This means that if we choose to trade the hourly expiration option, we will be caught inside this candle and we don’t know if, within an hour, the price will be all the way down here, or all the way up here. So, if we choose a short-term expiry for our whole option, in this case, we will be caught inside the first range or we will not give our trade enough time to breathe and enough time to develop.

So, if you are trading the four-hour-, well, if you’re analyzing your price action on the four hour chart and as we saw before on the slides, you will choose the end of day to the even end of week expiration option. And if you choose the end of day expiration option, we can see that we actually end up in the money. Boom.

Now, of course, if you choose to analyze price action on the 50 minute chart, and you choose a too large expiry time, the same thing will happen. You will have no control over your targets. We know that by choosing the end of day to the end of week, if perhaps, on this set up or maybe a two- day expiration option, we can give enough time for the trade to develop. We will end in the money because this set up is solid. But let’s imagine that we are now analyzing price action on the 15 minute chart.

If you’re analyzing price action on the 15 minute chart, and we’re using the exact same simple strategy of support and resistance, we notice that we have here an area of support which is this one, and when price tests this area and then we have an engulfing candle, we can actually buy call options here.

Of course, if you’re analyzing price action on the 15 minute chart, we are going to trade the hourly expiration option for example. Which means that we will only wait for four of these candles to create and close, for a trade to expire, or for our option to expire and our trade to be over. Thus giving our trade more than enough room to develop, but not enough room for it to go against us. Because if we give this trade, for example, an end of day expiration, we don’t know what will happen when our price reaches these levels of resistance. Price might go all the way up here but strongly reject this level and completely dip and reverse this main move.

So, this is why choosing the expiration time on your options is important. You want to give the trade enough room for it to breathe, and for it to develop in your favor, but not enough room that it will go against you if the price reaches a strong level that might be rejected in the future.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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