The decreasing timeframes strategy is a very simple concept, but a very effective one simply because it has a built in system of checks and balances to help further ensure the accuracy of your outcome. It is a short term trading strategy that relies on three different price charts, all of decreasing timeframes. Add this to the fact that it relies on two different technical indicators, and you have a thorough investigation into price movement, which should enhance the quality of your trades. Let’s take a look at how it works.
The Proper Way to Put this in Action
This strategy can be applied to any type of asset. Begin by looking at three different charts, one for one hour, one for 15 minutes, and one for five minute intervals. On each of these three charts, we are looking at the relative strength index (RSI) and stochastic indicators.
Using the RSI is pretty easy. If the RSI number is higher than 50, the trend for the asset in question is upward. If it is below 50, the trend is moving downward. The further that the RSI number runs from that baseline of 50, the higher the level of confidence you should have in your trade. When all three charts agree in relation to the trend of the asset’s price, you can move forward to the next indicator.
When you are using the stochastic indicator, the end goal is to find support for the conclusion that you have drawn from your RSI calculations. Again, start with the hourly chart, double check your data, and then move downward. In the end, you end up making six total calculations, all in quick succession. You can go through and check one chart at a time if you find that this is faster and allows you to keep your correct trade rate at an acceptable level. Just be sure that your information is staying reliable and relevant as you move forward. When you know the overall trend and have six agreeing calculations, when we find oversold conditions, it’s easy to pick up a call binary option, and the inverse for a put binary option.
An alternative of this method waits for there to be a slight divergence from the hourly trend by both the RSI and the stochastic indicator. Once this happens, there is strong evidence that a price reversal is going to occur. Start with the hourly, find a divergence, then move to the 15 minute chart and identify the strong support and resistance lines. When you find these, you can now move down to the five minute chart and wait for the price line to hit near the top of the channel created by the support and resistance lines. Once the price comes close to the resistance line, take out a put position. Once the line flirts with the support line, take out a call position. Because this method uses five minute increments, five to ten minute expiries are going to be the timeframe that should prove to be the most effective. In some circles, this latter alternative variation is referred to as the Raphael Strategy, and has gained quite a following.
Things to Consider
The biggest drawback of this strategy is that it does not lend itself to quick trades. With two indicators and three charts that need to be checked before each trade, it is not likely that you can fire off 10 of these in an hour and still maintain any acceptable level of accuracy in your trading. It also shouldn’t be a surprise that you should have a mastery over how to read RSI and stochastic indicators. This is a solid strategy, and with some experience trading binaries, you can be quite successful with it.
What you will find to be the biggest drawback to this, though, is the fact that it only works with good money management skills. Master these before you begin attempting the decreasing timeframes strategy or any of its variants.
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