If you trade on shorter time intervals then you need to understand that many strategies simply don’t work on these time spans or may not work as well as expected. In particular strategies based on fundamental analysis, (on news and events) work badly with short time periods. The reason is that if only several minutes have passed after an event has occurred then the market just wasn’t fast enough to “react” to it. Prices sometimes don’t react immediately to some events but rather at a later time period. That’s why it would be better not to attempt to apply fundamental analysis on very short time spans.
In case of technical analysis we should also recognize that not all of its techniques work well on short time spans. This is why you need to focus on strategies which can really help you to be successful and yield profits. Strategies designed to work on hourly time frames are called “scalping”. The word stands for “scalpel” and implies that a scalping trader has to act quickly and very accurately opposed to a trader using weekly time frames.
What kinds of strategies work well on very short time frames, namely, hours and minutes?
Below we consider those strategies which yielded really good results and which a trader can rely on if he wishes to win options constantly.
The strategy is based on analysis of the above mentioned bars, or Japanese candles. The bottom line is that, a new bar (candle) must be higher/lower by its body height than the previous one. For example, a candle has its highest point at 1.4050 and its lowest point at 1.4020. If the appropriate points of the next candle will be 1.4080/1.4060 then it is stays constant. Such combinations are very clearly visible on charts. You should check that the second candle doesn’t have a long and prolonged tail which might be a signal of a change in a short-term trend. If you can see that the candle has small shadows and is completely above the previous one then it may be viewed as a good signal to buy an option with the opinion that prices will go higher.
Candle patterns work pretty well on short time spans. You may use, for example, 10-minutes or hourly candles. It will allow you to predict most likely where the price to go in the next several minutes which can be easily used by an options trader and is a good path to success.
In fact there are a whole lot of strategies based on various indicators. As expected a reasonable trader always prefers to use, at least, two indicators whose readings would verify and complement each other. One of the most simple and valid methods to use are indicators such as moving average (MA) and RSI. If you use this strategy then you should buy options with the opinion that prices will rise if:
If you wish to be more accurate with your forecasts then you should wait until the current bar (candle) closes and the new one opens. If the price doesn’t retrace back then you may make a trade with confidence and assume that your forecast will be accurate eventually.
Lines and levels work on short time spans as well as on long ones. That’s why you may plot them with confidence and assume that in case of their break/bounce the price will act appropriately. At the same time if you trade on short time spans you mustn’t forget that every line or level must have “strong” signals to trade on them – in particular, they should be confirmed by a fair number of bounces in the past. The practice shows that one can draw an innumerable quantity of lines from one point to another on the chart. A trader should rather focus his attention on levels which were really well confirmed in the past and have proven their reliability.
The bottom line is that you should use various assets. You may select not only various assets but also “opposing” ones. For example, in many ways such assets are the euro and the Japanese yen. If the euro falls then the yen will most likely rise, and vice versa. If you trade two options at once then one of them are more than likely to expire in-the-money. Skilful traders who exploit such opportunities are often very successful.
There are also several additional opportunities, which are not so much strategies as techniques, which often help you to win. An example of this is a stop and reverse strategy. If you can see that your forecast is not accurate and the price goes in the other direction, it is never too late to buy another option whose price moves in another direction, so that you can pay off your losses. If you are successful then you will be able to profit from the losses. Many traders apply this technique intentionally when buying an option at the moment when the price can go in any direction. For example, when the price line has just broken through the support line but not yet bounced off it from the other side.
There is the opposite strategy which is called a strategy of addition
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