Successful Intraday Trading Strategy for the Intraday Trader
Lesson 1: Timeframes
Introduction: Becoming an intraday trader
If you’ve spent more than five minutes researching binary options on the internet, you already know there is no shortage of bravado among traders. Every other search result will return a promise of high returns and low risk. But let me ask you this? Do you know a successful binary options trader?
There are so many strategies out there. You can find a sample of the better day trading option strategies in our strategy section. However, despite the availability of good strategies, there are only a few successful binary option traders. Why? What are the reasons behind the discrepancy between the availability of quality information and the application of that information in the binary market? What is the common denominator between successful traders? In this series of lessons, you will learn how a trader – even a new trader – can join the elite group of traders succeeding at binary options day trading.
Rules of the Option Day Trading Game
As Albert Einstein once said, “you have to learn the rules of the game. And then you have to play better than anyone else.” This saying holds true in intraday trading as well. Once you make that decision to become an intraday binary options trader, you need to adopt a methodology that will help you navigate fluctuations in the market. Eventually, it will become like second nature and you will be able to recognize trends and setups quickly and efficiently. Once you perfect this skill implementing a strategy for intraday trading will be a piece of cake.
The methodology is based on a system of rules, which I will outline below.
The First Rule of Binary Options Day Trading… (you don’t talk about binary options day trading, sorry I couldn’t help it.)
Rule No. 1: DO NOT TRADE UNTIL YOU UNDERSTAND THE SENTIMENT OF THE MARKET
The market sentiment will tell you everything you need to know about your chances of winning trades. Market sentiment is simply the attitude of investors towards an asset or a particular market. You get a sense of market sentiment but looking at the movement of prices in the market. If prices are going up, you should expect a bearish market sentiment. If prices are going down, expect a bullish market sentiment. The direction of the market will affect your intraday trading strategy.
When you gauge market sentiment and see a bearish trend (an upward market trend), your chances for placing a successful trade will be higher if you buy CALL options. However, you might see an upward market trend but the standard deviation of the price is too high, in which case a market retrieve is expected. In this example you best chance for winning a trade will be through buying a PUT order. (You can find the standard deviation of the market through many indicators. The best indicator for reading the standard deviation is Bollinger bands. Another popular indicators is called ‘Momentum’.)
My 7 step methodology for understanding market sentiment when intraday trading with time frames:
Step 1: Open a Naked Chart. – A naked chart is simply a chart with no indicators. A naked chart is a must for an intraday trader. It is a great way to sense market sentiment because there are no distractions. You can get a clear sense of which direction the market is moving. There are a few types of naked charts. The one I prefer is a naked candle chart.
Step 2: Zoom in Gradually. – The first naked chart I like to look at is a monthly chart. This gives a better sense of market sentiment over time. It demonstrates the macro context of the day’s trades. After getting a sense of the market on a macro level, I reduce the chart’s time frame to a week. What we are doing is understanding the larger context and zooming in our focus. Finally, I take a look at the daily chart equipped with a broader perspective, which gives context to my intraday trading strategy.
Step 3: Mark Trend Lines. Now that you have a good sense of the market sentiment, you need to translate that information into something actionable. It doesn’t matter what your strategy for intraday trading is if you can’t act on it. The first step in taking action based on market sentiment is marking trend lines. Trend lines generally fall into two categories, resistance or support lines. For specific instructions on how to create trend lines check out our tutorial on the subject.
Step 4: Add Indicators. Depending on the intraday trading strategy you use, place the relevant indicators on your chart to see if it fits the overall trend. The indicators serve to fortify your trend line. They are a more precise way of turning market sentiment into actionable information. If the indicators reinforce a clear trend in your daily chart, move on to step 5. If the chart is not clear, move on to your next favorite currency, commodity, stock, or index and repeat steps 1-4. (Waiting for the right setup is extremely important. You can’t force it; you need to be prepared when it happens.)
Step 5: One More Zoom In. Now that you have a crystal clear understanding of the daily market trend, open a 1 hour chart and determine if the market trend in the 1 hour chart is aligned with trend you discerned in the daily chart.
Step 6: Start Your Engines. If everything looks good (i.e. the daily trend and 1 hour trend aligns), move on to your favorite options day trading time frame (15 mins, 5 mins, 60 seconds etc.). This is where you need to implement your intraday trading strategy. This is perhaps the most critical phase of the process. Only place orders that fit the market trend. Do not try to force anything. You can always move on to a different asset or wait until tomorrow when the market trends align in your favor.
Step 7: Ready, Set, Trade. What are you waiting for? Go make some money with winning trades!
If you follow my 7 step methodology for understanding market sentiment when intraday trading with time frames, you will certainly improve your options day trading skills. Practice makes perfect. You can perfect your skills risk free by opening a demo account on most binary options platforms. Mastering this process of understanding market sentiment, gauging the macro market trends, and aligning longer daily trends with hourly trends is the first step in your journey of joining that elite group of successful intraday binary option traders.