For people wanting the excitement of short-term trading with a fixed level of risk, few opportunities can rival the 5-minute binary option contract. Working with short timescales offers a fast pace for those with a need for quick opportunities, but with the protection of a binary option contract built in. If you’re going to add 5-minute binaries to your trading plan, you need a strategy to help you trade them effectively.
What is a 5-minute binary option?
Binary option contracts are financial instruments that enable traders to speculate on the markets with a full awareness of all possible outcomes. A 5-minute binary means the contract will expire in this time frame, so traders need to make fast decisions when it comes to their market predictions. As with all binary option contracts, there are two possible outcomes: a predefined profit, or a loss that will never exceed the cost of entering the trade. In other words, losses are limited and you can’t lose more than you put in. Many traders find this reassuring when buying or selling short-term contracts where markets can often move unpredictably. On the flip side, volatility and fast-paced trading offers an abundance of opportunities in the markets.
How do you trade 5-minute binary options?
To trade 5-minute binary options on Nadex, you can navigate to them directly - select by duration under the binary options tab.
The process for trading 5-minute binary option contracts is much the same as it is for trading contracts of all lengths. However, due to the short duration, traders must be comfortable with their analysis and market predictions in order to trade this type of contract. Learn the basics of trading binary option contracts and familiarize yourself with the terminology. There are various strategies you can adopt that are particularly appropriate when trading short-term contracts, which we will introduce you to here.
5-minute binary trading strategies and tips
These are some of the main strategies you might want to explore to help you become a confident trader using 5-minute binaries. The Nadex platform will enable you to add all these indicators to your charts, so you can pick and choose depending on your trading plan and the contracts that interest you.
Candlesticks are one of the fundamental ways of assessing markets and getting a snapshot of the direction in which they are moving. Once you learn to read candlesticks, you will have some of the basic knowledge that can be used to trade binary option contracts across various time frames.
When trading a fast-moving market with a binary option contract, many people will trade from candlestick charts as short in duration as one minute. This will give a tick-by-tick feel for the market’s fluctuations.
When placing trades, a very short increment on your candlesticks may be ideal. However, at the beginning of each trading session, many experienced traders will utilize charts covering a longer time frame, such as 15-minute candles. This way, they can get a broader view of the market and spot key levels of support and resistance not visible when looking at very short time frames. Once these key levels are noted, they will then drop down to the desired trading time frame when executing their trades.
Pivot points are usually short-term indicators, making them ideal as part of a 5-minute binary strategy. They are used to determine potential turning points in price action, so if a market’s underlying price is nearing a pivot point, this could be an indication that the trend will reverse. If the direction doesn’t reverse, this indicates a stronger potential trend.
Pivot points are based on the trading sessions from the previous day, taking their highs, lows and closing prices to carry out the pivot point calculations. They work by establishing support and resistance levels, which traders often utilize as trade entry points, profit target levels or take profit levels. When trading 5-minute binaries, where you have the choice to buy and sell different strikes, pivot points are useful for working out which strike is the most appropriate. They can help you decide whether a reversal is imminent, so you can choose whether to buy or sell, and at what price.
One example of using pivot points would be to look for a market approaching a support level. Using that level, you might look for an in-the-money (ITM) binary option strike just below it, in the belief that price will not drop below. Of course, further confirmation is often advised using the other indicators listed below.
Bollinger Bands are indicators used to measure volatility, which can be great for catching strong trends in short-term trading. They highlight times when there is little market volatility, when there might be less chance of buying low and achieving a bigger profit. Bollinger Bands will also signal when markets are moving and there is more trading opportunity. This is shown through the bands themselves – narrower bands mean a quieter market, and wider bands mean more volatility. When trading 5-minute binary option contracts, Bollinger Bands can alert you to general volatility and opportunity when you are deciding which markets to trade
Moving averages can work across multiple time frames, so you can choose charts that give shorter-term signals. This is perfect for trading 5-minute binary options. Moving averages can be one of the initial ways to identify a trend, making them useful when deciding whether to buy or sell. They can also provide support and resistance levels, which traders can use to place entry and exit orders. While moving averages can be used with short-term charts, you can also use them with long-term charts to get further confirmation of trends.
Momentum in the context of trading refers to the force behind a market movement, carrying price action in a certain direction. You can use various indicators to show momentum in the short term, including moving average convergence/divergence (MACD) or stochastic. When momentum carries a market too far in one direction, this can be cause for a reversal. Learn more about trading with these indicators to apply them to your strategy.
Trading 5-minute binary option contracts isn’t all that different to trading other binary option contract lengths – you need the right charts, the right mindset, and a concrete trading plan to trade them successfully. Learn more about the various technical indicators, how you can apply them to 5-minute charts, and how you can build them into your trading plan.