Whenever trading binary options, the main concern a trader has is to look for the best possible setup for the option to expire in the money. If the option is in the money at the expiration date, then this means the option is profitable and the trade was successful.
The following are the conditions for a binary option to be considered profitable:
- buying calls implies a trader is looking for price to increase, and therefore, in order for the option to be considered profitable, the price at the expiration date should be bigger than the striking price (the price the option is actually bought). If these conditions are met, then the option is said to expire in the money, and it is considered profitable;
- buying puts implies a trader is looking for price to decrease, and therefore in order for the option to be considered profitable, the price at the expiration date should be lower than the striking price (the price the option is actually bought). If these conditions are met, then the option is said to expire in the money, and it is considered profitable.
Based on the above, the expiration date is important when trading binary options and, based on the time frame analyzed, the expiration date should very, and hence the binary options should differ.
The four hours chart is one the most important time frames as, with most of the brokers it is associated with fixings. The London, New York and Asian fixings are exact moments of time when, for example, options on the regular options market are expiring and that makes the flows in the normal spot market to influence current price.. The binary options recommended to be traded on the four hour chart are:
- options with medium term expiration date: end of day expiration date can be used if price is reaching a specific level at fixing times, but my recommendation would be here to look for either end of week (if the analysis is made at the beginning of the week) or one week expiration dates;
- one touch options: ideally to be traded when specific patterns appear on this time frame, like contracting triangles, pennants, etc. This kinds of patterns allow time to be taking into consideration and therefore the expiration date can be set easily;
- using the option builder tool to customize your binary option might be a way to go starting with this time frame as Ichimoku allows properly to identify potential bouncing/rejecting areas.