Intro

BTC 5 minute and 15 minute markets on Polymarket, Kalshi and GammaSwap are short duration binary options.

The trade is simple. You have a strike price and you are betting whether the underlying asset, in this case $BTC, will go up or down. The price is the probability of the outcome.

It has similar qualities to an option: path independent, no liquidations and convexity - gamma for those in the know (swap da gamma). Unlike a vanilla option, the UX is extremely simple. You know how much you are set to win once you make the trade. It is a fixed, all or no thing payout amount while a vanilla option has a continuous return profile with a variable payout. TL;DR short duration crypto predictions (BTC 5m, 15m) have many of the same properties of regular options but with simpler fixed payouts. Trading crypto prediction markets is an options trading activity and so the technical indicators used should measure volatility or signal direction.

Technical Indicators

1. Bollinger Bands

Bollinger Bands measure volatility by plotting an upper and lower price range around a middle moving average:

• Middle band: usually a 20-period simple moving average. Pictured as the orange solid line in the video.
• Upper band: middle band + 2 standard deviations Pictured as the upper blue solid line.
• Lower band: middle band − 2 standard deviations. Pictured as the lower blue solid line.

How Volatility Affects the Bands

• High Volatility: The bands widen and move further apart when price swings increase.
• Low Volatility: The bands contract and move closer together during quiet trading periods.
• The Squeeze: A tight contraction of the bands is known as a squeeze, which often signals an upcoming sharp breakout or major price move.

2. Exponential Moving Average (EMA)

An EMA is an average price that gives more weight to recent prices. It is pictured by the blue solid line in the video above and uses the following formula:

EMAₜ = αPₜ + (1 - α)EMAₜ - 1

The higher weighting of recent prices makes it respond faster than a simple moving average.

Why it is useful:

• Rising EMA: bullish trend bias.
• Falling EMA: bearish trend bias.
• Price above or below the EMA can serve as a direction filter.
• Pullbacks toward an EMA may provide better-timed entries.

It's great to use in mean reverting strategies in periods when volatility tends to decrease, such as in the evening or afternoon.

3. Moving Average Convergence Divergence (MACD)

MACD measures trend momentum using two EMAs. It subtracts a 26-period exponential moving average from a 12-period exponential moving average to show if market momentum is growing or shrinking. It is pictured in its own horizontal section under the BTC/USD chart in the video.

Typical interpretation:

• MACD above its signal line: momentum is becoming more bullish.
• MACD below its signal line: momentum is becoming more bearish.
• Above zero: shorter-term trend is stronger than the longer-term trend.

Why it is potentially useful:

It can confirm whether an EMA-defined trend has sufficient momentum. It's not necessarily useful as a leading indicator itself.

4. Stochastic Relative Strength Index (RSI)

Stochastic RSI measures where the current RSI sits within its own recent range.

Stoch RSI = Current RSI - Lowest RSI / Highest RSI - Lowest RSI

It is normally displayed from 0 - 100:

• Below 20: RSI is near the bottom of its recent range.
• Above 80: RSI is near the top of its recent range.

Why potentially useful:

It reacts quickly, making it more useful for trading than a typical RSI indicator for fast markets.

Conclusion

Technical indicators can help you trade short duration binary options, like the BTC 5 minute markets found on Polymarket and GammaSwap.

It is best to combine two to three indicators to validate signals around volatility, direction and momentum.

In future articles, we will discuss other strategies in your tool box you can use to identify how fairly priced markets are.