Updated: Jan 31, 2020
A good 5-minute strategy is one of the best ways of trading binary options. To get it right, there are a few things you need to know.
What Is A 5-Minute Strategy?
A 5-minute strategy is a strategy for trading binary options with an expiry of 5-minutes. While there are thousands of possible 5-minute strategies, there are a few criteria that can help you identify those that are ideal for you. In the eyes of many traders, 5-minute expiries are the sweet spot of expiries.
The market does not move as random as on shorter time frames, which reduces your risk.You can still make a lot of trades in a day, which increases your earning potential.
5-minute expiries are as short as possible but as long as necessary. A 5-minute strategy allows you to take advantage of this perfect connection. Let’s take a look at two possible 5-minute strategies. Strategy 1: Trading MFI extremes with high/low optionsWith one exception, all 5-minute strategies are based on technical analysis.
Over the next 5 minutes, fundamental influences are unimportant – for example, no stock will rise because the company behind it is doing well. The only thing that matters is the relationship of supply and demand on the stock exchange –whether traders are currently buying or selling. Technical analysis is the only way of understanding this relationship. One of the technical indicators that can best describe the relationship between supply and demand is the Money Flow Index (MFI). The MFI compares the numbers of assets sold to the number of assets bought and generates a value between 0 and 100.
When the MFI reads 0, everybody who wanted to trade the asset wanted to sell it.When the MFI reads 100, everybody who wanted to trade the asset wanted to buy it.When the MFI reads 50, the number of traders who wanted to sell the asset was exactly equal to the number of traders who wanted to buy it.
The relationship between buying and selling traders allows you to understand what will happen to the price of the asset next. Since the price is determined by supply and demand, a strong movement where too many have already bought or sold exhausts one side of this relationship. The market has to turn around.
When too many traders have already bought an asset, there are too few traders left to push the market upwards. Demand will exhaust, and the market will fall.When too many traders have already sold an asset, there are too few traders left to push the market downwards. Supply will exhaust, and the market will rise.
The MFI helps you to identify these situations:
When the MFI reaches a value over 80, the market is overbought. It will likely start to fall soon.When the MFI reaches a value below 20, the market is oversold. It will likely start to rise soon.
Binary options offer you the ideal tool for trading this prediction:
Invest in a low option when the MFI reaches a value over 80.Invest in a high option when the MFI reaches a value below 20.
This strategy work especially great as a 5-minute strategy. During long-term trends (one year or longer), the MFI often stay in the over- or underbought areas for long periods. Fundamental influences are strong on these time frames and can keep pushing the market in the same direction for years. On shorter time frames, fundamental influences are unimportant. It is more important to identify the number of traders that are left to buy or sell an asset and draw the right conclusions from this indication.
The MFI is the perfect tool for this diagnosis, and binary options are the ideal way of trading it.
5 Min Strategy 2: Trading the news
If you feel uncomfortable with a strategy that uses only a mathematical basis for its prediction, there is one alternative to technical analysis as the basis of a 5-minute strategy: trading the news. When important news hits the market, there usually is a quick, strong reaction. You can trade this reaction with a high/low option, one touch option, or ladder option, depending on your preference and tolerance of risk. This strategy works well as a 5-minute strategy because longer expires face the threat of other events influencing the market and causing a price change. For the next 5 minutes after the release of important news, however, you can be sure that the news will dominate the market.