The time element is one of the most important things to consider when trading Forex and looking at markets from this point of view offers a trader a great competitive advantage.
Not only is time important when trading forex with binary options (we need to choose the right expiration date, remember?) but it is important regardless what markets one is trading (currency markets, equities, bonds, etc.). Knowing when a specific price is going to be hit is a valuable information in trading. How to incorporate the time element into any our forex market analysis. According to Elliott waves theory, there are ways to incorporate the time element by trading corrective waves. They are called flats and zigzags as the confirmation of such patterns comes from price reaching a specific level in a specific moment of time.
Projecting the Outcomes – Using Vertical Lines and Measuring the Candles
Time can be considered by using vertical lines and measuring the candles (or how much time price spends on a specific pattern). Projecting the outcome on the right side of the chart represents the forecasted period of time when the price should reach a specific level. In terms of trading binary options, this is the key in setting the right expiration date.With CFDS its about recognising the right time to close the position. There is a saying that knowing where price is going but not knowing when is going to go to a specific level represents incomplete information.
It is well known the fact that human nature favors big returns as fast as possible and this is one of the reasons why short-term expiration dates are favored when trading binary options. However, it doesn’t mean it is the right way to trade as most of the times short term trends are changing on nothing at all. If you believe EURUSD is going to 1.40 but you’re saying when is going to do that then than is not a valid information. Therefore, trying to incorporate a timeframe into any forecast is the very basic when trading forex with instrument of any kind and this is one of the most difficult things to do.
Elliott Waves Theory in Forex Trading
There are a few trading theories that allow time to be measured and then the price needs to go and travel a specific distance in a specific amount of time. In that case, time represents a validation of a previous pattern, and if the pattern is not confirmed it means time did not confirm the pattern. Such patterns are to be found within the Elliott Waves Theory as it is one of the theories that takes the time into account and allows for projections.
- In the case of a zigzag, a really common corrective wave, the thing to do is to take a trend line from the beginning of the pattern and drag it all the way until the end of the b wave (the zigzag being a corrective wave it has the structure of an a-b-c). The move to follow after the zigzag is completed needs to break that trendline in less than the time taken for the c wave to form. In other words, what is needed to be done is to measure the time taken for the c wave (c wave is always an impulsive move when it is part of a zigzag) and project it on the right side of the chart.
One important thing when doing this is to mind the time frame the pattern is forming as measuring the time in trading represents measuring the candles. If the pattern is on the daily chart, for example, then trading with a bigger time horizon like the end of month for your binary option may do the trick. On the other hand, if the zigzag in the example from above is on the hourly chart, then end of the day and even shorter expiration dates can be traded. However, when it comes to the time element, one of the most controversial theories is represented by Gann theory.
According to Gann, each and every financial instrument is moving with its own angle and identifying that angle is key. Moreover, there is a Gann square theory that can be used in finding Gann numbers that are key when forecasting both price and time, namely where price is going and the amount of time or the exact date when that specific level is going to be reached. The outcome of the Gann theory is that one can make a forecast on both price and time, namely where a security is going and when. After all, this is the whole purpose when trading, right?