First of all, it is appropriate to start with the fact that for people who are looking for electrifying short-term trading with a constant and generally predetermined level of risk, very few opportunities in the financial market can compete with a 5-minute binary options contract. Working as a trader in the broader financial markets under short timeframe conditions offers lucrative investment benefits for those who prefer a fast and intense trading model, but with the default protection of the binary options contract. This publication is primarily aimed at those who plan to add 5-minute binary contracts to their investment portfolio.
How does the 5 minute binary option work?
Binary options contracts are derivative financial instruments that open up the possibility for investors to speculate on the global market with full knowledge of possible trading results. 5-minute binary options trading means that the contract will expire within this time frame. The practical conclusion from this is that traders have to react extremely quickly and under a lot of pressure when it comes to their predictions related to the direction of the market. As with all binary options contracts, there are only two possible outcomes. The first is, of course, the predetermined profit that a trader can achieve from a single contract. Consequently, the second scenario is a loss that will never exceed the trader's entry cost. In other words, losses are limited and predetermined by the legal structure of this financial instrument and you cannot lose more than you have invested. Many experienced traders commonly express the view that, after all, it is a derivative with a relatively acceptable level of risk compared to some other investment opportunities that are available on the regulated financial market. In addition, the volatility of underlying asset price movements and fast trading offer plenty of opportunities to generate significant profits.
From the point of view of the actions to be performed on the financial platform, the process of trading 5-minute binary options contracts is not much different from the one that needs to be followed in the case of contracts of any other length. What characterizes this particular type of trading is the extremely short duration, and this determines that investors must acquire the ability to quickly draw conclusions from their market forecasts and analyzes in order to react quickly enough to close individual contracts successfully. First of all, if your ambition is to learn the basics of trading 5-minute binary options contracts, you should do two things first. Start by familiarizing yourself with the terminology associated with this type of trading. The second step is to gain knowledge about the different investment strategies that involve trading short-term contracts. These strategies are presented below:
5 minute binary trading strategies
Pivot points
Pivot points are treated by investors as short-term indicators, which makes them extremely important components in 5-minute binary options trading strategies. These indicators are helpful for defining potential turning points in price movements. This means that if the price of the underlying asset on the chart is approaching a turning point, it may indicate that the current price trend is about to reverse. If the direction of the price of the underlying asset does not reverse, it may mean that the current trend will continue for longer, which is a valuable clue in terms of purchasing further contracts.
Pivot points mechanism is based on data from trading sessions from the previous day. These indicators in price movements provide information on chart highs and lows, as well as closing price information to perform pivot point calculations. These analytical tools work by identifying support and resistance levels which are often used by traders as guides for entry points to trade. When trading with 5-minute binary options contracts, where the trader has a range of buying and selling contracts with different strike prices, pivot points are useful in determining which strike price is most appropriate for a given underlying asset. Pivot point data can provide invaluable help in deciding whether a trend reversal is imminent, and consequently, you can accurately decide whether you should buy or sell a contract and at what price.
A purely academic example of using pivot points is to look for a market that is approaching a support level. Using your analytical knowledge of that level, you can then look for an in-the-money (ITM) binary option contract just below that level, assuming the price doesn't go below. Of course, experienced investors in the binary options markets often recommend the use of more analytical tools on which we write below.
Candlesticks
Candlesticks are one of the most elementary methods of evaluating the markets and building a view of the direction in which market trends are moving. Once you master the skill of reading candlesticks and extracting useful insights from them, you will acquire the necessary knowledge that you can then use to trade short-term binary options contracts.
By interacting with the fast-moving financial markets through binary options contracts, you will need to trade on candlestick charts as short as one minute. This gives you an excellent sense of market fluctuations.
An extremely short rise on candlesticks will usually be ideal when you are trading. However, be aware that at the beginning of each session, many experienced traders will inevitably use charts covering longer timeframes such as 15-minute candlesticks or even longer. In this way, traders with a lot of experience gain a broader picture of the market. This also allows them to determine the most important support and resistance levels that are never visible when analyzing data from very narrow timeframes.
Bollinger Bands
Bollinger Bands provide data to measure market volatility. This information is used by traders in the binary options markets to form opinions about strong trends in short-term trading. This tool draws traders' attention to periods of low market volatility. The correct analysis of the data from this indicator helps in determining when there may be a lower chance to buy a contract cheaply and achieve a higher profit. Bollinger Bands are traditionally used, also for manifestations, when the markets are moving. As a result, investors are able to decide when there are more trading opportunities, and this leads to decisions about when to buy new contracts. Narrower bands mean that the market is calmer at the moment. In turn, wider bands mean greater volatility in the underlying market. In conclusion, traders in the 5-minute binary options trading markets use Bollinger Bands to ascertain the overall volatility of the markets they intend to choose to trade.
Momentum
Momentum in binary options trading refers to the force behind the market movement in the chart of the underlying asset that drives price action in a certain direction. Traders often use various indicators to determine the direction of momentum in the short term. In this context, the most commonly used analytical tools include the moving average convergence/divergence (MACD) or the stochastic analytical model. The empirical point of view determines that if momentum takes the market too far in one direction, it can be the cause of a trend reversal. Before you start trading short-term binary options contracts, be sure to learn as much as you can about the mechanisms related to these indicators in order to then effectively apply them in your trading strategy.
Moving averages
Moving averages are used by traders on many different time frames. Therefore, they are also often used to trade 5-minute binary options. Moving averages are most often one of the first and most basic methods of identifying the trend in the underlying market, and consequently, these indicators are widely used when making decisions to buy or sell. Often, this analytical tool is desirable when determining support and resistance levels that are used by traders to place entry and exit orders. Moving averages are a versatile and extremely useful tool, as they work well for both short-term and long-term trading.
