In the context of binary options trading the phrase ‘time frame’ describes how long a statistical chart showing market movements covers. Such a chart can cover the last 10 minutes, the last hour, or the last five years. The period in question is its time frame.
In binary trading we are always looking at the short term. A binary option is always asking you to predict price movements over a short period of time, never a long time into the future. Therefore, binary traders will mostly rely on shorter time frames when analyzing the market.
Technical analysis is a method for statistical analysis that lets traders make predictions based on past market developments. In technical analysis you will use tools such as candlestick charts to represent market movements. In order to do this successfully, it is crucial to choose appropriate time frames.
Time frames and binary trading
If you plan to invest in a binary option, you need to form an opinion about where the market is headed next for one specific asset. You can do this by relying on technical analysis. This is a way of looking for patterns in how the price of the asset has moved in the past in order to predict future movement.
In technical analysis price movements are shown in candlestick charts. These charts will tell you how the price has been developing over the course of a set time period. You can adjust this time period, the time frame, yourself. Depending on which time frame you operate with, the candlestick will tell you very different things.
If you choose a 5 minute time frame for your chart, each candlestick will represent 5 minutes of market movements. By looking at 10 candlesticks on your chart, you will in other words be looking at 50 minutes of price developments. By looking at a 100 candlesticks, you are viewing the last 500 minutes of trading, and so on.
You can also choose a longer time frame for each candlestick. For example 1 hour. Then, by looking at 20 candlesticks, you will have a graph depicting price movements over the course of the last 20 hours of trading.
By looking at an asset’s development in different time frames, you can get a great insight into its past performance. This should give you a good indication of what might happen in the future too. You can use candlesticks to look for trends you can follow, for trends about to turn, or trends that are about to develop. Based on this, you can make well-founded predictions.
Choosing time frames
What sort of time frame gives you the best, most relevant information depends on many factors. Perhaps the most important is your choice of running time for the option you intend to invest in. Binary options can have running times of as little as half a minute and as much as several hours. Clearly, what you choose should influence your choice of time frame.
So, let’s say you wish to invest in a high/low option with a running time of 15 minutes. You are a trend follower and looking for a trend to develop. First you need to investigate how long it took for a price trend to develop for the asset you wish to invest in the last time it happened. Seeing as 15 minutes is a short period, you might want to use 5 minute candlesticks. So what has happened in the past during 3 such candlesticks? How about 10 or 15? By looking back, you should be able to see patterns. If the price of the asset previously held a trend for 10 5-minute candlesticks, the question becomes how far it is into its current movement. If the answer is fewer than 7, you might assume that the ongoing movement will persist for the 15 minutes of your binary option and invest accordingly..