Lately we keep seeing a misuse of language concerning binary options and day trading. Specifically, we see references to binary options being “better than day trading,” or day traders “switching” over to binary options trading. This kind of language is confusing for new traders, who may think that day trading is somehow unreliable and overly speculative, and that binary options trading is different, safer, and more reliable. In truth, binary options may be day trading. Day trading refers to a timeframe for trading.

When you decide to trade binary options, Forex, stocks, or anything else, you will need to decide what timeframe you want to run your trades on. While traders will sometimes trade on multiple timeframes, the majority choose to do short-term or long-term trades and to focus on one thing.

Here are the three main types of trading as defined by timeframe:

  • Position trades, or long-term trades. These are trades you stay in for a long time, usually weeks or months, sometimes even years. In binary options trading, you can become a position trader if you want and if your broker offers you long expiry times. Trades which take weeks or longer to expire are defined as long term trades. If you trade on this timeframe, whether you deal in binary options or not, you are not a day trader, by definition.
  • Interday trades, or swing trades. You are again not a day trader if you do interday trading. Swing trading and interday trading are both words for the same thing, which is holding a position for several days. Wikipedia’s article on swing trading specifically denotes a period of 1-4 days, though we have encountered variable definitions.
  • Intraday trading, or day trading. Day trading involves holding a position for under a day, meaning between the open and close of a single market day. You might hold the position for seconds, minutes, or hours. You can do this with binary options, just as you can with other types of trading. 60 Second trades are all day trades, but so are trades which remain open for longer. A trade that is open for twelve hours is just as much a day trade as a 60 Second trade.

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Why Is Day Trading Considered Less Reliable?

Day trading has a reputation of being more speculative than other types of trading, but is it really? In general, probably not. There really is no reason to consider a position held for a short time any less legitimate or effective than one held for a long time. There is nothing inherent to the process of day trading which makes it less reliable than swing or position trading.

So why are there so many assertions than binary options trading is “better than” day trading? Ignoring the fact for now that binary options trading often is day trading, let’s look again at the idea of long vs. short term trades and their advantages and disadvantages.

Pros of Long Term Trades

  • Long-term trading gives you more time to make trading decisions. This can be helpful if you have a difficult time thinking fast under pressure.
  • It takes longer to blow your account with position trades. If something is going wrong, you are more likely to notice it in time before you lose all your money.

Cons of Long Term Trades

  • Long-term trading gives you a lot of time to second-guess trading decisions. If you are prone to questioning yourself even when you do things right, this could cause you problems.

Pros of Short Term Trades

  • More trading opportunities. By dint of the fact that there are more hours in a given year than weeks, there are usually more setups.
  • Better for intuitive traders who have a difficult time waiting through long trades. If you are prone to second guessing yourself, you may do better with short term trades.

Cons of Short Term Trades

  • Too much, too fast. It can be tough to make good trading decisions in a hurry.
  • More prone to slippage and unpredictability, even technical problems. A slight delay in transmission of an order to close early for example, could cost you a ton of money with a 60 Second trade.
  • It’s way too easy to blow your account overnight. If you open an account with the minimum deposit on a binary options trading site and start doing 60 Seconds trades, you can theoretically blow your bankroll within a day, maybe even a matter of hours. If you’re really overcommitted with your funds on a few trades, you could even do it in minutes.

Choosing Your Expiry Times

So how do you decide whether to become a day trader or not? Should you choose long-term position trades by using weekly expiry times, or should you go for short time frames, maybe expiry periods ranging from minutes to hours? Should you aim for something in the middle, like 1-4 days?

While you were reading the pros and cons of long and short-term trading, did you identify with any of the pitfalls we mentioned? Examine your personality as a trader, and see how that can inform your decision. Would you have a difficult time waiting through long-term trades? Would the pressure overwhelm you into wanting to close out early? Or would you be more likely to err if you were doing short term trades, and trying to make decisions too fast for your own good?

If you’re just starting out and aren’t sure what to do, here are our recommendations:

  1. Start out by backtesting a trading method on historical data. Better yet, try out several, or a bunch, until you find one you like. Some are designed for specific expiry times, while others work great for a variety of time periods. If you find systems that work great on all time periods, you can test different time periods and start figuring out how you feel about trading.
  1. Demo test! This is the best way to figure out your trading personality when it comes to time. You should quickly figure out how your emotions fit into your trading and how trading long or short term positions might help you mitigate them.
  1. If in doubt, aim for interday positions. As you might expect, the middle ground is a good place to go if you want to avoid the extremes associated with either position trading or day trading. Interday trading can help you to learn how to trade without being in a hurry or struggling with emotions over long time periods. Once you get better at it, you might switch to slower or faster expiry times based on your needs.

Ultimately it is your personality which will determine whether you should be a day trader or not. And yes, you can be a day trader and trade binary options. You can also trade binary options and not become a day trader. It’s all up to you.

Do your testing and decide for yourself what you want to do!