6 Things to Look For Before You Place a Trade in Binary Options

Do you have a trading strategy and a trading plan which you always adhere to while trading?

Is it effective enough or does it fail sometimes?

Do you know the reasons why your strategy may sometimes fail?

Thought-provoking questions right there, uh?

But really, why do trading systems fail?

Most trading systems fail not because they are poor, but because we fail to understand what we can do better with them.

To help you understand what you can do better concerning your trading strategy, we will go deep into things you should look for before you place a trade.

You may realize that this will come either as a totally new idea or furtherance to your trading strategy.

Either way, it is worth it because it will give you the utmost confidence that you did all that there was to be done, even if your strategy ended up failing.

The probability of a win in the case where you have observed all these 6 things is actually multiple times higher than when you just relied on your strategy signal only.

Here are the 6 things to look for before you place a trade in Olymp Trade in:

• Entry Timeframe Market Structure.
• Suitable Higher Timeframe Market Structure.
• Market Volatility.
• Signal and Trigger.
• The proximity of Signal to an Area of Value.
• The proximity of Signal to an Opposing Pressure.

1. Entry Timeframe Market Structure.

Two questions here – what is an entry timeframe and what is market structure? We shall answer both of them.

Entry Timeframe.

An entry timeframe is that timeframe which you usually use when making entries or taking trades.

Some traders prefer entering trades on the 1 Minute timeframe as others prefer the 5 Minute timeframe.

Others still, prefer taking trades while on the 15 Minute or the 30 Minute timeframe while others do so at the 1 Hour timeframe.

There are also some swing traders who prefer making entries at the H4, D1, or W1 timeframes.

Which timeframe among the following do you prefer for entries?

• 1 Minute (M1)
• 5 Minute (M5)
• 15 Minute (M15)
• 30 Minute (M30)
• 1 Hour (H1)
• 4 Hour (H4)
• 1 Day (D1)
• One Week (W1)
• 1 Month (MN)

Market Structure.

Market Structure refers to the layout of the market.

The market has phases and stages which make up the layout.

At one moment, the market might be at the accumulation stage while at another, it might be on the advancing stage.

At other moments still, the market might be at the distribution stage while at other times it is at the declining phase.

What remains is to have you understand how the accumulation, advancing, distribution, and declining stages look like. Here are the specifications:

1. Accumulation stage – this is consolidation or ranging of the market after a marked downtrend.
2. Advancing stage – this is a marked price rise after the accumulation stage.
3. Distribution stage – this is consolidation or ranging of the market after the advancing stage.
4. Declining stage – this is a marked price fall after the distribution stage.

As you can see, each stage of the market structure leads to another.

Furthermore, it is like the market recycles those four stages every other time and hence the name, market structure.

The accumulation stage and advancing stage represent a reversal of a previous downtrend to an uptrend.

On the other hand, distribution and declining stages represent a reversal of the uptrend shown by the advancing stage into a downtrend.

That is how the market will always behave.

Bias Establishment.

After establishing which stage of the market structure the market is in on the entry timeframe, there is the bias that you get inclined towards.

Here are the specifications:

1. Accumulation Bearish Bias – you may anticipate shorting at the upper limit of the range at the accumulation stage.
2. Accumulation Bullish Bias – you may also look to buy at the lower limit of the same range.
3. Advancing Bullish Bias – better still, you can wait for the price to break the upper limit of the accumulation stage as it enters the advancing stage and then buy.
4. Distribution Bearish and Bullish Bias – you can trade the distribution stage the same way you would trade the accumulation stage because they are both ranges.
5. Declining Bearish Bias – you can also wait for the price to break the lower limit of the distribution stage range as it enters the declining stage and then sell.

By establishing the bias, we don’t mean that you should buy or sell at this step.

It is just the first thing you need to look for before you place a trade. Let us proceed to thing 2.

2. Suitable Higher Timeframe Market Structure.

You now understand what market structure is.

No matter the timeframe your chart is on, market structure is basically all we talked about in the previous section.

The question at this point should be about what a suitable higher timeframe is.

A suitable higher timeframe is determined in relation to the entry timeframe.

We defined and discussed an entry timeframe in the previous section.

How to determine a suitable higher timeframe is simply by using the factor of 4-6 in relation to the entry timeframe.

That means the suitable higher timeframes for the various entry timeframes will be arrived at by multiplying the entry timeframe by 4, 5, or 6.

Here are the specifications:

Entry Timeframe	Suitable Higher Timeframe
1 Minute (M1)	5 Minute (M5)
5 Minute (M5)	30 Minute (M30)
15 Minute (M15)	1 Hour (H1)
1 Hour (H1)	4 Hour (H4)
4 Hour (H4)	1 Day (D1)
1 Day (D1)	One Week (W1)
1 Week (W1)	1 Month (MN)

Moving On.

Now, after you have a suitable higher timeframe, check the market structure at that timeframe.

Does it match the market structure you obtained at the entry timeframe or does it sharply contrast it?

If it the two contrast, which of the two sets of timeframes should you obey more?

Very important questions right there.

If both timeframes are on the same market structure, then your work is made even easier.

All you have to do is to make sure to trade in the direction of the current swing of the higher timeframe.

However, if the higher timeframe contrasts the entry timeframe, you might need a bit more of understanding to do.

Let us take an example where the price on the higher timeframe is on the advancing stage thus rallying upwards yet the price on the entry timeframe is dropping.

It may mean that the market is actually on an uptrend as shown by the higher timeframe and what is happening on the entry timeframe is simply a retracement before the upward move resumes.

The vice versa is true where the higher timeframe is on the declining stage yet the entry timeframe price is rising.

It means that the market is actually on a downtrend as shown by the higher timeframe but the entry timeframe simply shows an upward retracement before the down move resumes.

3. Market Volatility.

Market volatility refers to how fast the price changes within a given period of time.

High market volatility indicates that the prices of assets are changing dramatically or rapidly in a short period of time.

Low volatility, on the other hand, indicates that the prices of assets are changing slowly.

Different traders prefer trading under different volatility conditions.

Meaning that whereas some traders prefer trading when market volatility is high, others prefer low market volatility.

Whichever preference different traders have, it doesn’t change the fact that the best and most profitable opportunities are found in markets where volatility is highest.

When market prices are changing rapidly, you are assured that the market is moving.

However, where market prices are slow, they tend to stagnate and so they are highly unpredictable.

That way, because you can only profit when markets move, then it goes without saying that high volatility conditions are the most profitable.

Note that it is actually the action of different traders that drives volatility.

At times volatility may actually correspond to volume.

So would you rather trade when most traders, including the major players, are trading or when they are out of the market?

I am sure it is when most traders are on board and that happens when market volatility is high.

So what then?

Check the market volatility and ensure that the markets are as volatile as you prefer. If they don’t seem to move, then what is the point of jumping in?

4. Signal and Trigger.

You have a trading strategy, right?

It is such a strategy that you have been using to identify trading signals and triggers to entry, right?

I guess the answer to both questions is yes.

If there is a mistake you should never make while trading is to enter the market without spotting a trading signal and an entry trigger.

If you get greedy and enter before you spot the two, then you will face the music when the market comes haunting you as you stare helplessly.

So this is one of the most important things to look for before you can place any trade.

You don’t just place trades anyhow, anywhere, and without proper analysis.

Example.

If we get back to the issues of market structure that we have been dealing with, most signals and triggers will be in form of breakouts or areas of value.

For example, if the market is at the accumulation phase, a bullish signal will be drawn where the price at the entry timeframe has hit the lower limit of the range and the price on the higher timeframe is rising.

A bullish signal may also come up where the price breaks above the upper limit of the accumulation phase on the entry timeframe and is rising on the higher timeframe.

A bearish signal may be drawn by the price on the entry timeframe hitting the upper limit of the distribution phase as it falls on the higher timeframe.

Further, a bearish signal may also be spotted where the price breaks below the lower limit of the distribution phase on the entry timeframe and has been falling on the higher timeframe.

Those are classical examples of signals.

Whatever kind of signals you usually look for while trading, just ensure that you have spotted them before proceeding to entry.

5. The proximity of Signal to an Area of Value.

Have you established a viable trading signal?

Well, you have done well to do so. Then are you aware of a concept we refer to as areas of value?

If you are not, then an area of value is that area on the price of an asset that is significant to either buyers or sellers.

It might be a certain price level which the price seems to respect almost always in form of support or resistance.

How far your bullish or bearish signal is from an area of value is significant to the placement of your Stop Loss level.

A Stop Loss level is an order type that specifies how much of your account you are willing to risk for that particular trade.

Example.

Let us say for example the price has been rising on the higher timeframe.

On the entry timeframe, there is a support zone in which the price has already respected and risen upwards to almost mid-level of the previous move, where it gives a bullish signal.

It is only rational to place a Stop Loss for any buy position just below a Support level.

That is because if you place it higher than that, the price might move and activate it, knocking you out early.

In our case, you must place the Stop Loss just below the support level and so it means you will have a wider Stop Loss than if you spotted the price earlier enough when it was at the Support level.

Wider Stop Loss orders expose much of your trading account.

If you had been on that asset earlier, when the price was at the support level, you would have spotted a bullish signal and entered a buy position early.

Your stop loss would be just a few pips below the entry, which corresponds to just below the support level, and that would expose less of your trading account.

The same concept applies when dealing with the resistance area of value and others.

It is such areas of value that determine where your Stop Loss will be.

Therefore, you should be keen to spot them.

If your signal is far away from the area of value such that a Stop Loss will irrationally expose so much of your trading account, you may as well disregard that signal and look for another.

6. The proximity of Signal to Opposing Pressure.

Do you have a signal and a trigger ready?

It doesn’t qualify to be a perfect entry unless you have established potential opposing pressure.

But what exactly is this thing we call opposing pressure?

It is a concept similar to areas of value that we discussed in the previous section.

They are levels on the price of an asset significant to either buyers or sellers which might affect buy or sell orders of other traders.

Just like areas of value, they may be certain price levels which the price seems to respect almost always in form of support or resistance.

How far your bullish or bearish signal is from a potential area of opposing pressure is significant to the placement of your Take Profit level.

A Take Profit order is one that specifies how much profit you are willing to gain from that particular trade.

As we think about the relationship between where the signal is and where the potential opposing pressure is, the risk to reward ratio is where the focus is.

Example.

Let us take the same example we had in the previous section where the price has been rising on the higher timeframe.

On the entry timeframe, there is a support zone in which the price has already respected and risen upwards to almost mid-level of the previous move, where it gives a bullish signal.

Just above where the signal has been spotted, there is a resistance level which the price seems to have respected previously without fail.

It is only rational to place a Take Profit for any buy position just below a resistance level.

That is because if you place Take Profit higher than the resistance, the price might reverse at the resistance downwards and never activate it, to your detriment.

In our case, you must place the Take Profit just below the resistance and so it means you will have a very narrow Take Profit than if you spotted the price earlier enough when it was at the Support level.

Narrow Take Profit makes it difficult to attain the minimum risk to reward ratio of 1:2 and therefore limits your chance of profiting from the setup.

If Only…

If you had been on that asset earlier, when the price was at the support level, you would have spotted a bullish signal and entered a buy position early.

Your Take Profit would be just below the resistance level, and that would give the price enough distance to cover in profits, improving your risk to reward ratio.

Mark you, your Stop Loss is just a few pips below the entry, which is just below the support, and then there is the Take Profit which is miles and miles away from the entry.

The same concept applies when dealing with upward opposing pressure.

It is such areas of potential opposing pressure which determine where your Take Profit will be. Therefore, you should be keen to spot them too.

If your signal is very close to an area of potential opposing pressure such that it will irrationally minimize your risk to reward ratio, you may as well disregard that signal and look for another.

Final Thoughts.

What exactly do you look for before you make any entry or make any trade? Above are things you must begin checking before any entry.

This will increase your chances of profiting from every trade that you take. Begin today.

Happy Trading!