I’d like to talk about one skill required for successful binary options trading, which in my option is only second in importance to self-discipline. That skill is TIMING! Knowing when you should trade, and knowing when you should NOT trade.
Most beginners, and many intermediate traders too, tend to focus almost exclusively in finding a great strategy that just work and is profitable, disregarding almost completely about when to apply such strategies
We too, in the Chocolate Mousse team, back in the days when we first started looking for our way into Binary options, we found the hard way that time matters. It matters in such a big way, that I dare to say timing is even more important than the strategy itself.
I remember that back in my newbie’s days, I often found myself visually back testing some strategy on the charts, thinking that I had found the solution to all my financial worries, as it just seemed to win consistently. The excitement was always short lived, because each time I would begin trading the strategy on a live account, my capital would quickly start dissipating.
Even though we had read articles about ideal trading times for various currencies, this was always a grey area (and it still is to a big extent), because different traders had different opinions in regards, so we often dismissed it as a non-critical factor.
It was only a few months later, when we started to implement more sophisticated reporting, that we found that some of those strategies we played with in the early days where indeed profitable, but they were only profitable for a short time each day.
Some were profitable only for an hour per day, others for two or three hours per day, and rarely some strategy could even profit for 6-8 hours per day if traded with the right currency pair, but never more than that.
The hard-data we had in our hands was a major breakthrough for us, and it marked the beginning of a journey that took us into profitable territory, and eventually to the birth of the Chocolate Mousse service.
The best time to trade depends on the type of strategy, and on the currency being traded.
We can probably classify all binary option strategies into two top-level categories. 1) ranging market strategies and 2) trending market strategies.
At Chocolate Mousse we deal exclusively with ranging market strategies, which doesn’t mean that trending strategies are bad (they work great for many traders), it’s only that we had better initial results with ranging strategies, and consequently we ended up specializing in those.
Ranging strategies rely on flat markets, when the price moves following wave patterns and without generating major trends. This type of pattern tends to manifest itself more frequently when both of the markets associated to the traded currency are closed. For example when trading EURUSD, there will often be less volatility when both New York and Frankfurt are closed, so between 10 pm and 7 am GMT.
Having said that, we found that often the last opening hour of a pair can also be a great time to apply a ranging strategy. In the case of EURUSD this would be between 9pm and 10pm GMT. At this point in time Frankfurt is long closed, and things start to become quite in America too, with many traders being tired and stressed out, and just waiting to go home or to head down to the pub ???? So there is much less trend, but still there is some stability and control over the market, which keeps it somehow predictable.
But there is always a catch…
Even though on the long run we have been profitable trading the last hour of both EURUSD and GBPJPY over the years, this hour of the day can often become very unpredictable. Particular attention should be paid to world events. I’m not referring just about the usual economic news from the calendar, but to actual major world events, being these political, economical, military, or whatever, so long as they make a big news. From experience when something major is going on, the calm market that normally characterize this hour doesn’t manifest itself, and instead it continues trending or it just gets very messy. This sometimes can last for weeks in a row, as we learned the hard way.
All those day traders who instead prefer trending strategies, they usually want to trade when the markets are open.
I have heard people suggesting that the best trends are born when only one market of the traded pair is open, so that the price gets only pushed in one direction. I’m personally sceptical of such statement, because there are so many factors involved, still it may potentially apply for some currencies in some scenarios, and it deserves some testing. What most agree upon, is that it is not recommended to speculate on a trend when both markets are closed.
To conclude, I recommend that before trading any strategy with real money, you either visually back-test it on a chart or test it on a demo account for an extensive period of time, then take note of those hours that had the best results, and once you go live only stick to those.
Another article will follow on how to properly back-test a strategy.