Finance

Developing a 5-minute option trading method

Options trading has always been one of the most lucrative financial sectors for currency traders. Unlike the Forex trading business, at options trading, you have to deal with the expiry period.  In each trade, you get a different payout option and this allows you to control the profit potential. In a nutshell, everything is the same about options trading except for the expiry period. The professionals love to use the option trading method as it allows them to make a quick profit within a short period of time. Today we will learn the perfect way to create a balanced trading system. The best thing about this article is that we will be creating the system to trade the 5 minute time frame.

Use of the 4-hour chart

In order to trade in the 5 minute time chart, we need to use the 4-hour chart. By analyzing the 4-hour chart, we will be drawing the pivot levels. Pivot levels are more like the support and resistance level for the traders. In this level, the traders execute the trade. The reason for which we will be using the 4-hour chart to find this level is reliability. Since our execution window is based on the 5-minute chart, we must find the major levels. Taking the trades at the minor level will create massive confusion and this will cost traders money.

Analyzing the 5-minute chart

After you have drawn the critical levels in the 4-hour chart, it’s time to look at the trade setup in the 5-minute chart. Since you will be analyzing the lower time frame data, it is important that you find a great broker. Saxo is a premium broker and if you visit now, you will notice that they have one of the best possible trading environments for their clients. In the 5 minute chart, you need to look for a simple pin bar. You need a bullish pin bar at the support level for the call option. For the put option, look for the bearish pin bar. Based on the pin bar, you can take the trade.

Determination of the trend

We are familiar with the importance of trend trading strategy. Though the trades will be taken in the 5-minute chart, still you need to trade with the trend. Taking the trades with the trend can reduce the risk of trading to a great extent. Many traders think options traders don’t have to take trades with the trend. But they are absolutely wrong. In fact, option traders have no alternative other than taking trades with the trend. If you want to survive in trading, you must learn to trade with the trend. For that, you need to determine the trend. You can use the trend line tool to find trades in the market.

Learn about the different phases of the trend so that you can take trades with precision. Spend some time in the demo account to work out the nature of the trend. Within a few weeks, you can adapt yourself to the trending market.

Expiry period

Since the trades will be taken in the 5-minute chart, the expiry period for each trade must be less than 5 minutes. Anything above 5 minutes will jeopardize the trade setup. Some of the retail traders often ignore the importance of the expiry period. But this is a very big mistake. In order to survive in the long run, you need to look at the expiry period before you even consider the trade. The payout for the trade should be at least 70%, or it will be tough to survive in the long run. Things are really easy but we make things complex. Follow the rules and it won’t take much time to learn this trading technique.

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