Binary Options with Ranges

Binary Options with Ranges

People who study investment assets such as stocks or commodities will tell you that almost 70% of the time these assets will stay in a so called ‘consolidation’ or ‘tunnel’ phase, where movement of the asset stays within a certain range. The first step in using this trading strategy is to decide on the range to use. Range trading works best when the market is consolidating or in other words, when the market is trading sideways and not trending. In a trending market, rising or falling prices make it impossible to predict a price floor or ceiling, thus severely blunting the trader’s ability to profit from this trade.

When placing a range type of trade, the trader is betting that the asset will finish in or out of its normal predetermined consolidation (tunnel) range within a specified period of time.

Here is an example of how a binary option range trade works to help simplify it. You are looking at making a binary option range trade based on USD / EUR. The current trading for USD / EUR is 1.9 and the current predetermined range you are given to work with is .99 to 1.25. Based on your analysis you feel that when the option expires the new range will be about 1.29 so you take the ‘out of range option’. The option actually expires at USD / EUR 1.26 and out of the predetermined range so you finish the trade in the money and collect your already established percentage.

That is the beauty of trading binary options because they are so simple to see the resolution on and you already know your profit or loss at the time of the trade.

When betting that binary option will finish out of a range a lot of traders will tell you they like to see at least two areas of resistance on the chart and two areas of support before they will make this type of trade. The reason for this is that one area of support or resistance is not enough to make a confirmation that movement is about to take place. It is more often than not after a second area of support or resistance that price often exceeds the predetermined range. One has to be very careful with this when identifying this possible movement so they are not fooled into making a bad trade.

When trying to identifying ranges a couple of things must be determined. The first is to find the pattern of the previous trend before it went into its consolidation area. The second is to determine whether the move of this previous trend was bearish/bullish and impulsive or simply corrective.

Once these things are established you can then establish the amount you want to trade and the time frame you wish to trade in.

Final Note

The boundary trade is not the only binary option contract that you can trade with this strategy. You can also use this strategy to trade a Touch/No Touch option contract. The bias here should be for a No Touch option contract, taking time to set the price barrier either to the upside or downside, well outside the range of prices as demarcated by your price floor and price ceiling. This way, you are sure that the price action of the underlying asset has no chance whatsoever of coming close to your price barriers.

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