More traders are choosing digital options rather than other financial instruments. The reason is they are easy to trade, or so it seems. Trading options is basically deciding on the direction of the price within a certain time. And you get the profit if your assumptions were right.
Expiration of the option is precisely specified. You can find the expirations period varies from 30 seconds to a few months even, depends on the broker. Olymp Trade allows opening an option for a minimum of 1 minute.
You may think that the shorter period the faster you get money. In fact, the shorter the time, the higher the probability of losing money.
If you are here for some time already you could notice I often recommend opening position for at least 5 minutes on the options or currency pairs market. Today I want to explain to you why.
Minor price movements
Look at the exemplary chart. It is a chart of the EURUSD currency pair with 1-minute period candles.
The last candle on the chart is a bearish one and the difference between the opening and the closing price is just 0.0001. Your task, when trading options, is to decide whether the price will go up or down. But it is extremely unlikely to predict such a small movement like 0.0001.
The situation will look quite different if I open a 5-minute position instead. The probability my calculation was right rises significantly.
It is not only the case on the Olymp Trade platform. Even if you choose another broker you have to expect identically small price fluctuations within such a short time as 1 minute. To enhance the chances of winning trades you should avoid 1-minute positions. You should open the trades that last a long time, so the price movements are stronger.
Trading long-lasting positions on the Olymp Trade platform
You already know you do not want to open a position for 1 minute. You want 5 minutes or more. Now, the duration of your trade will be very much connected to the candles period you are using. If the candles period is 1 minute, enter the trade for 5 minutes. If the candles period is 5 minutes, you may hold your position for at least 15 minutes.
So this was the first reason why to choose long-lasting positions over 1-minute trades. That is, it just makes easier to anticipate where the price will go and the small fluctuations do not affect the trade.
The second reason why to trade longer time frames is more psychological. There will simply be less pressure on you.
Look at the chart. Again, it is the chart of the EURUSD currency pair with 1-minute interval candles. Focus on the uptrend in the middle of the chart.
This is clearly an uptrend although not all the candles are the bullish ones. There are some bearish candles among them as there will be always some price corrections.
If you decide to open 1-minute trade, you may easily end up losing as you may just enter at the consolidation points. But if you open 5-minute lasting position or more, you will most probably finish with a profit because right after the correction of the price the uptrend continues.
The same happens during the downtrend. It does not consist only of the bearish candles. If you open a 1-minute position, you can just hit the moment of consolidation and lose. Open a transaction of the long time frame and you will boost the chances of winning.
Some argue that the brokers manipulate the price within short periods so you probably lose funds. This information is not proven, but the truth is that the manipulations over longer periods are more visible. So instead of worrying is the broker manipulates the prices or not, just trade longer time frames.
Do I never enter 1-minute trades on the Olymp Trade platform?
Some situations on the market may be favourable to open short-lasting positions. And those are where there is a strong trend noticeable. Like for example if the longer bullish candles are developing during an uptrend.
To spot such a situation you need to have some practice and a good eye. Moreover, it will be beneficial to use the support/resistance levels along with other technical indicators so you are sure the trend is evolving.
That is all I wanted to say today. If you have any comments if you want to share your experience with us or tell us simply for how long you keep the positions open, use the comment section below.
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