Should You Trade Long Term Binary Options?

Should You Trade Long Term Binary Options?

Prior to this year, I do not recall seeing any binary options brokers offering trades much longer than several days, and very few brokers even offering that.  Almost all brokers for binary options have made it their specialty to offer trades which take place within a single day.  Now, however, I am noticing a lot more brokers that allow traders to enter into positions for several days.  And some are even offering special “long-term binary options.”  Long-term binary options are the exact opposite of short-term binary options.  Whereas short-term options expire within a couple of minutes or less, long-term trades may expire weeks or even months in the future.  Should you trade these long-term options?  What are the benefits and drawbacks?

3 Types of Trading

There are 3 basic types of trading when we are talking about expiry times.  These are very common choices for stock traders, futures traders, and Forex traders.  They are:

  • Intraday trading.  This is also called simply “day trading.”  This refers to being in a position for less than a day.  You always get out before the close of the market day, whether at a profit or a loss.  Previously, almost all binary options trades fit under this category.

  • Swing trading.  This refers to a trade which you enter for more than a day, but generally for less than a week.  The majority of trades in this category span about one to four days.

  • Position trading.  With this type of trade, you hold onto a position for weeks or months.  Some position traders outside of binary options may even hold a position for years (this was very common when the carry trade was popular in Forex).

Outside of the binary options universe, most traders think of swing trading as the moderate choice.  Position trading is “slow” trading, and anything that takes place within a single day is blazing fast.  Many traders are not even comfortable with intraday trading at all, and consider trades which only span several minutes (scalping) to be almost unthinkably fast.

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Adjusting Your Perspective

In the binary options community, there is a difference in perspective when it comes to what is considered a “fast” trade.  This is likely because of the connection between binary options trading and gambling.  There are always gamblers who will participate in any market (including the traditional stock market), but binary options trading definitely exists at a very strong intersection between business and entertainment.  Since so many gamblers enjoy trading binary options, it is only natural that binary options traders have a skewed perspective when it comes to timing.

Binary options traders consider trades lasting several minutes or less to be “fast” and everything else to be pretty slow.  Brokers have set things up this way on purpose, to encourage traders to gamble their money on the fastest options.  Gambling is an instant-gratification behavior for most people, so it makes sense to cater to traders who want to gain or lose their money instantaneously.  The other reason for it is simple: it is honestly  much easier to lose your money when you are scalping.  There is a lot more choppiness and unpredictability, and it can easily cost you.

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“Long-term trades” are a bit harder for brokers to sell, especially to the gambling population.  It can be tedious to sit and wait for an outcome for weeks or months to a single trade—both for the trader and the broker.  And you also may be asking yourself how you can possibly profit if you only take a few trades.  But consider first some of the reasons why you should trade these options once your broker makes them available to you.

Advantages of Long Term Trades

  • Plan your trades with more reliable data.  Long-term traders usually plan their trades using data from the weekly or monthly charts.  Each candle on these charts contains an incredible amount of information.  Contrast this with the amount of data contained on a 5-minute chart, where each candle only contains 5 minutes’ worth of information—not a week’s worth or a month’s worth.  More reliability means less room for error.

  • Less chop.  Whipsaws are a problem for every trader on the planet, but you can be sure of encountering a lot more of them on faster timeframes.  When you trade fast options or 60-second options, you expose yourself to far more volatile conditions.  And all it takes is a very small movement away from your direction to cost you your entire trade.  Those little movements won’t impact you as much (or at all) on longer-term trades, and whipsaws and fakeouts are far less common.

  • More time to make decisions.  Once you are in your trade, you may need to make decisions about doubling up, rolling over, or getting out early (whether at a profit or at a loss).  Wouldn’t it be easier to make those decisions when you have time to consider?  Some traders are prone to panicking and judgment errors at slow speeds.

  • More easily manage multiple open positions.  There may be fewer trade opportunities for any given asset, but on your binary options platform, you may have access to hundreds of assets.  Take advantage of that, as well as the time that you have, and get into multiple trades.  You can easily monitor several ongoing trades if they are lasting longer than a few hours, particularly if they are spanning weeks or months.

Consider Swing Trading

If you are no more comfortable with the idea of being in a trade for weeks than you are with the concept of being in a trade for only a couple of minutes or hours, look to see if your broker is starting to offer trades which last several days to a week.  These trades may be considered “long-term trades” by your broker, so look for them there if you do not find them listed elsewhere.  These trades offer you a middle ground.  Trades are not rushed, but they do not take forever either.  There are more opportunities than you will find on the weekly or monthly timeframes.  The whipsaws are moderate.  You can plan swing trades using hourly or daily data.

Treat Trading Like a Business – Patience Pays Off!

I think this is a good time for a quick reminder that if you want to win at binary options, you have to be willing to be patient and treat it like a business.  Maybe now you can see why brokers have taken so long to start providing these longer term options to traders.  It is because for patient traders, they are easier to win.  You are much more likely to learn how to trade profitably with longer-term trades than short-term trades, especially 60-second options.

Should you avoid fast options?  No, but you should consider what type of options you will excel with, and if you are just a newbie trader, you should get started with options which run several hours at least before you step up to the fast options.  And strongly consider long-term trades if your broker lets you participate in them.  By being patient and trading smart, you set yourself up to win.  And it may not feel like it now, but many long-term traders will blaze past impatient short-term traders in the end, leaving the gamblers back at the starting line!