Because binary options traders are not concerned with how much an asset moves in price, only the direction, a 1 Hour Strategy is considered ideal for effectively identifying medium-term price movements for profitable high frequency trading.
So what is a 1 Hour Binary Options Strategy?
Generally, binary options contracts that expire between 5 minute and 1-2hours are considered to have a medium-term expiration. Using lower time frame price charts such as 1-minute, 5-minute and 15-minute chart, a 1 hour binary option allows traders the flexibility to trade and time to strategically analyze the market, therefore creating more opportunities for traders for profit.
A 1 hour binary option can refer to any binary options contract which has a one hour expiry time, whether the contract is of the High/Low, Boundary, One Touch, Touch/No Touch, Tunnel or Range binary option varieties.
Trading a Flat Market
The possibility exists that, given an assets price, that it will neither increase or decrease in value during a pre-defined option period and rather trade in a narrow range, ending the period at more or less the same level at which it began.
That is, when an assets price is stable and lacks volatility during a trading period, a flat (or sideways) market is identified. Human nature typically overlooks trading a sideways markets.
How to Trade in a Sideways Market
Because a binary option contract is effectively asking a ‘yes’ or ‘no’ question – that is, for example: will the price of Spot Gold be greater than or less than $1,394.00 at expiry given its current trading price of $1,393.40 the smallest of price change above or below the expiry price can render a trade a loss (or out-of-the-money).
With this knowledge, if the trader believes the price will be greater than $1,394 at expiry, they will place a Call trade. If they believe the price will be less and $1,394, they will place a Put trade.
If alternatively, the trader believes the market will remain relatively flat (trendless and moving sideways) for the remaining period until contract expiry, the trader is able to initiate a high probability flat market trade to capitalise on this with just a 1 hour expiry.
How to Trade a 1 Hour Sideways Market for Profit and Low Risk
At 1.20AM Spot Gold is trading at $1,393.40 and you (as the trader) believe the market will remain flat and continue to trade within a very narrow price range.
With the knowledge that the closer to expiry the binary option is, the lower the percentage payout (known in options trading as Time Decay)– a Put trade is entered on the Spot Gold: $1,394.00 (2.20AM expiry) option with a percentage payout ratio of 85% on a $25 trade.
If at expiry, Spot Gold < $1,394.00, the trade will expire in the money with a $46.25 return. If at expiry Spot Gold > $1,394.00, the trade is a 100% loss.
At 1.50AM the Spot Gold market has, as per your prediction, remained flat. However, because the contract is now closer to expiration, and there is a lower probability that Spot Gold price will exceed $1,394.00, the percentage payout amount drops to 38%. That is, the bid/offer percentage payout amount has reduced to 38/62% (put/call).
At this point, if there is a suspicion that price volatility may change, a trader can exit the position (a call trade) at 62% (from the put 85% trade) for a net gain of 23% per contract traded or $30.75.
Alternatively, the position can be held until expiry and if the Spot Gold price is still below $1,394.00, the Put trade will be successful and expire in- the- money for a $46.25 profit. If Spot Gold price is above $1,394.00 the trade will expire out-of-the-money at a 100% loss.
Responsible money management ensures that the losses don’t mitigate the profits.