Multiple Time-Frames Binary Options Strategy

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Multiple Time Frame Power Strategy – Can you handle it?

Full Review of the Multiple Time Frame Power Strategy

The financial market is so complicated sometimes with all the trends, higher lows, lower highs, interest Rates, Earnings reports…that sometimes I wonder why I chose this line of work. And then it immediately hits me: big profits – financial freedom – I can do it from my home or from a beach…ok, I’m going to keep doing this. But to continue I need a good strategy, right? I can’t just go placing Calls and Puts all over the place, hoping they will eventually end up In the Money. One generally accepted rule is that the higher time frames filter the noise coming from the lower time frames and a trade that agrees with the higher time frame has more chances of success even if it’s taken in the shorter time frame. With that in mind, I will start explaining the strategy:

How to use the Multiple Time Frame strategy

This system takes advantage of the power of two classic indicators that I already talked about in my “Simple Balanced System” review. I am referring to the Relative Strength Index (RSI) and Stochastic Oscillator; you can find them as built in indicators for the Meta Trader 4 platform. But the most interesting thing about this strategy is that it uses the two indicators on different time frames: insert the RSI (use default settings of 14) on the four hour chart (H4) and the Stochastic Oscillator (settings 15, 3, 3) on a 15 minute chart of the same asset. The RSI on the four hour chart will show us the main price direction and the Stochastic will give us the actual trade signal. Here are the Call/Put entry rules:

Call entry

  1. RSI on 4 hour chart is above the 50 level (add manually)
  2. Stochastic on the 15 minute chart crosses upwards, in Oversold territor

Put entry

  1. RSI on 4 hour chart is below the 50 level (add manually)
  2. Stochastic on the 15 minute chart crosses downwards, in Overbought territory

That’s it, just two conditions to enter a trade but by trading only in the direction of the higher time frame, we know we always go with the prevailing trend. Here’s a picture of some valid Call entries:

The red vertical lines on the 15 minute time frame are all Call signals and they are all taken during the period when the RSI was above the 50 level on the H4 time frame. Actually the RSI stayed above 50 for about 14 days and many good Call opportunities presented during that period, but of course, I cannot show them all because I would have to zoom out the 15 min chart too much and you wouldn’t understand anything from the picture.

Why does the Multiple Time Frame Power system Suck?

Although the principle behind the system is one of my favorites, the Stochastic signal can be sometimes late or even false; same thing is true for RSI: it can go above/below the 50 level just for a short while during ranging periods and then reverse, leaving us with money on the bad side of the market. The system could be hard to grasp for a beginner because it takes a lot of discipline to wait for the H4 RSI to line up and only trade in that direction.

Why the Multiple Time Frame Power system doesn’t Suck?

It doesn’t suck for a simple reason: all entries in line with the higher time frame price direction have a greater chance of success. I don’t want to sound like a broken record, but…the trend really is your friend and you have to know how to take advantage of it. This system makes us pay attention to the big picture, to what happens on the higher time frames and filters out a lot of noise. The Stochastic settings and even the ones for the Relative Strength Index can be adjusted to suit your own style and increase the amount of signals or decrease them.

Wrapping it up

No system is perfect and neither is this one. Constantly searching for the Holy Grail will just make you lose money, get frustrated and end up buying stupid software/systems provided by scam artists and false “gurus”. I think all you need is a decently performing system that fits your style and one that you can follow with discipline. The ultimate “Eureka!” moment will come when you realize the system is not so important and you had the Holy Grail all along: it’s your mind.

For more information about the multiple time frame system visit our forum here.

Trading Binary Options with Multiple Timeframes

There are two important requisites to successful trading. The first one is the identification of the trend and the second one is the precise entry. To achieve those objectives, successful professionals always suggest beginners to compare the charts of higher and lower timeframe with that of the trading timeframe. The advice is based on the simple fact that a higher timeframe chart always reflects, with clarity, the primary trend of a security. Similarly, minute nuances (accurate high or low) of price movement can be seen clearly only in the lower timeframe chart. Thus, entering a trade in line with the primary trend and near the recent high or low price increases the probability of success. Let us see how the same strategy can be applied in binary options trading.

Basics of Multiple Timeframe Trading

The process of multiple timeframe trading begins with the trend analysis in the higher timeframe chart. If the trend in the higher timeframe chart matches with the prevailing trend in the trading timeframe chart then a trade can be taken using the trend reversal in the lower timeframe chart.

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Practically, to analyze trend, professionals suggest beginner traders to choose a timeframe, which is at least three times more than the trading timeframe. Likewise, a timeframe, which is at least three times lower than the trading timeframe is the ideal one for spotting entries.

For example, let us consider that the trading timeframe is 5min. The higher and lower timeframe would be 15min and 1min respectively. If the 15min and 5min chart indicates an uptrend then a long position is taken during the final stages of retracement (decline) in the 1min timeframe. Similarly, if the 15min and 5min chart indicates a downtrend then a short position is taken during the final stages of a pullback (uptrend) in the 1min timeframe.

The strategy discussed above enables a trader to be in line with the major trend and enter near the lowest/highest price. Only a trend reversal in the higher timeframe can put the trader at loss.

To identify the trend, an exponential moving average can be used. For spotting entries a trader can use a fast moving oscillator such as a RSI (relative strength index) or stochastic.

Setting Up a Binary Options Trade

5 min / 30 min / 1hr options

To begin with, a trader should remember that as per the multiple timeframe strategy, the option contract’s expiry time period should be used as the trading timeframe. Thus, for a binary options contract with 30min expiry period, the trading timeframe would be the 30min. The lower and higher timeframe, based on a minimum of 3x multiple, would be 5min and 4H respectively.

Let a 14-period exponential moving average be added to the price chart. In the , a 14-period RSI indicator is added to the chart as well. A 50-level horizontal line is drawn to the RSI indicator using the properties window.

Now the entries are made as follows:

  1. Check whether the price is above or below the 14-day moving average in the higher timeframe. If the price is above the 14-day moving average then it means that the trend is up and vice versa.
  2. Match the higher timeframe chart’s trend with the existing trend in the trading timeframe chart.
  3. If the trend in the higher timeframe matches with the trend in the trading timeframe then we have an opportunity to enter.
  4. Wait for the RSI to cross above or below the 50 level in the lower timeframe. Bullishness is indicated when the RSI crosses above the 50-level. On the other hand, bearishness is indicated when the RSI crosses below the 50-level.
  5. If the trend is up (as indicated by a match between trends existing in the higher and trading timeframe) then buy a call option soon after the RSI crosses above the 50-level in the lower timeframe. If the trend is down then buy a put option soon after the RSI crosses below the 50-level in the lower timeframe.

Please note that a call or put option is bought only when there is a cross- over of RSI signal across the 50-level and not when the RSI moves above/below the 50-level.

To succeed in binary options trade not only is the entry important. The price should also stay above or below a level prescribed by the binary broker at the time of expiry. To identify the probable price limit an asset can travel during a given period of time, let us draw a Fibonacci retracement line using the recent swing low to high (uptrend) or swing high to low (downtrend) in the trading timeframe chart. As the diagram below illustrates, 61.8% (commonly referred as the golden ratio) level is where the price normally touches during a retracement from an uptrend or a pullback from a downtrend.

So, even if there is a perfect trade setup, it is better to avoid an entry if the target price of the broker is away from the 61.8% retracement level.

One Touch Options Trade

A one touch call or put options trade is done as discussed above. The most important thing is that the target price provided in the broker’s platform should be equal or preferably less than the 61.8% level. This will ensure success provided all other steps are taken correctly.

A double one touch options trade can be traded in the same manner. However, it should be noted that only the target price which lies in the direction of the trend has the higher probability of being touched. Thus, with a multiple timeframe strategy, it is better to trade a one touch options contract, which usually offers better returns.

No Touch Options Trade

A no touch options trade is executed in a slightly different manner. The strategy discussed above ensures that price hits a particular level. In the case of no touch options trade, we would wish to see the price deviate away from the ‘no touch’ price level set by the broker. This is achieved in the following manner:

  1. To begin with, check whether the ‘no touch’ target price is in the direction of the primary trend or not. If the target price is not in the direction of the trend then we have an opportunity to trade as per the step by step procedure provided earlier.
  2. Purchase the contract when the RSI makes a (above or below the 50-level) in the direction of the trend in the lower timeframe chart.

For example, let us consider that a no touch options contract is available for trade with 30min expiry.

  1. Check the primary trend indicated by the higher timeframe (4H). If it is up then monitor for an uptrend in the 30min (trading timeframe) chart.
  2. Choose a no touch options contract with target price below the moving average.
  3. Purchase the no touch option contract once the RSI crosses above the 50-level in the lower timeframe (5min) chart.

It is better to avoid trading a double no touch options contract with this strategy since one of the ‘no touch’ target price will be in the direction of the primary trend.

Once a trader gets hold of the strategy, trades can be executed successfully several times a day, as illustrated in the images, since the primary trend lasts for a longer period of time.

Trading Multiple Time Frames – The Key to Successful Trading

Multiple time frame analysis is one of the most important things you should be doing before you take every trade.

So, in order to get you to remember this before you bust out your charts and start trading, consider this true story. It explains what multiple frame trading is and why you should use it on every trade you take.

If you live in an area where there can be bad weather for a few days in a row, you understand the importance of knowing what the weather is going to be like if you plan on doing anything outside. (i.e. Picnic, motorcycle ride, sporting event, outside concert, etc.)

Especially if you live in areas where there are always a potential for tornadoes, hail storms, snowstorms, hurricanes, and so on.

So let me explain a few very important lessons (as traders) we can learn by simply scanning the weather radar. Also, read the Simple way of trading multiple time frames in forex.

Lessons Traders can Learn from the Weather Radar

This may sound silly but trust me, this is some good stuff…

The other day I was planning an outside activity that required there to be no rain, no snow, no excessive winds, etc.

You get the point…

It needed to be nice and sunny out at this time (4 PM).

Here is what the radar would have looked like earlier in the day before the special event I was planning at 8 a.m.

So at 8 a.m., it was looking like a beautiful day. The birds were chirping, the sun was out, a light breeze.

Just overall perfect.

But remember, 4 p.m. was 8 hours away at this point.

So what I then did was zoom out of the weather radar to see if there was any inclement weather heading in my direction and will be at my location at 4 p.m.

Well as you may expect, here is what I found:

Snow/rain storms were heading in quickly. This horrible weather will be at my exact location roughly around the time of my planned activity!

Long story short, I ended up rescheduling my event due to the inclement weather that was going to take place.

To tie this example into our trading habits, if I would have not “zoomed out” at a larger frame and saw what was taking place a few hundred miles away, I would have been devastated when the time came for my event and there were 6 inches of snow on the ground.

This exact scenario can be compared to multi-time frame analysis. We do as traders on our charts every time we trade.

The Importance of Multiple Time Frame Analysis

Never get caught in just taking trades on one timeframe. Think of it like you are the Forex multiple time frame indicator. You are the indicator that scans different time frames.

What multiple time frame analysis is, is simply this:

If you trade on a 5-minute chart, you should have your eyes on 30 min and 1hr time charts. If you trade on a 15-minute chart, you should be checking out the 1hr and 4hr chart, etc.

Here’s an example:

You see a move like above on a 5-minute chart and you think “wow I need to get in the short trade.”

But what you have not done is “zoom-out” and check other larger time frames that may be showing something different.

As you see above on a larger 1-hour time chart, this may have been a simple retracement before heading back in a bullish trend.

That is why it is important to check other time frames every time you want to make a trade.

Most of the time, you will learn a great amount of information if you bump up to a larger time frame or bump down to a shorter one you are currently on. Look for prior support, resistance, a trending pair, or one that is in a current channel.

Here are some of the main advantages of using this type of approach before you enter a trade:

Benefits of Multiple Time Frame Analysis

  • Key levels of support and resistance may exist near your trade, but that can’t be seen on the time-frame you are trading on.
  • The trend may appear differently on the time-frame you are looking at than where the long term trend is moving.

  • Price may appear to have room to move on one time-frame where it is actually quite over-extended on a lesser time-frame.
  • You can make a much more precise entry point on shorter times than on longer ones.
  • You may take a great trade on a short time-frame and hit your target, but not realize you could have let it run for a way bigger profit due to the longer-term trend.

We hope this information helps you see the importance of doing this multiple time frame analysis before you ever consider taking a trade. Don’t forget to read about the multi time frame moving average strategy.

So maybe next time you check out your weather radar on your phone/computer you will think about this example. Remember the importance of multiple time frame analysis. ��

Thanks for reading!

Please leave a comment below if you have any questions about Trading Multiple Time Frames!

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