How to Trade the Touch Binary Option
This article will describe the key steps and considerations in trading the Touch binary option. The Touch binary option is a trade type which is based on direction and range of movement.
This is because the trade presents two price targets that are located above and below the market price. The trader’s job is to choose one of these targets and setup the trade around this target. Since one price is located above market price and the other located below market price, the issue of direction must be factored into the trade strategy. You also have to remember that the strike price target is located at some distance from the market price and the trade has an expiry date, so you must also be sure that the asset will move in your chosen direction and actually hit the strike price chosen for the trade before the trade expires. This is the only way that you can be sure of success in the Touch trade.
The touch trade variants
There are two varieties to the Touch trade.
- Touch/No Touch trade where the trader is given a price target and has to determine if the asset will touch the price target or not.
- One Touch trade, where the trader is presented with two strike prices, one above and another below the market price.
Some platforms refer to this trade as the Touch Up/Touch Down trade. This trade comes with a high yield payout and a one-week expiration.
For the Touch/No Touch trade, the following considerations must be made by the trader when trading is option.
- A single strike price is set for the trade.
- The strike price is not usually located too far from the market price.
- The trades rarely exceed an expiration of 45 minutes. (The only exception is when the trade is executed on the Binary.com platform, where expiry times are more flexible and are customizable as well.)
For this trade, there is more emphasis on direction than on range. However, it is still pertinent to check the range of the asset with regard to the market price. Usually, the use of a recent support/resistance will indicate how far prices can go when making a move in a particular direction.
The trader is free to use any strategy that can define direction and range. The Fibonacci retracement and extension tools can define direction as well as range.
Using the Fibonacci Retracement tool
The Fibonacci retracement tool plots several levels of retracement after an initial advance in prices. These levels can then be used as a benchmark for determining of the strike price set for the trade is achievable within the allocated time limit. For instance, if the trader is given a strike price, and the Fibonacci retracement tool shows that this price is located between two retracement levels which are along the path of renewed price movement, then this is a valid tool to use in setting the trade.
To use this tool, trace from the swing high to swing low (downtrend) or from swing low to high (in an uptrend). The retracement levels will appear. The price will retrace to one of these levels, resume movement in the original trend, then the trader can then check to see if the strike price for the Touch/No Touch trade is located along this pathway between the two closes Fibonacci levels.
Using the Fibonacci Extension tool
This tool is used to see the extent of the final move of the asset following a resumption of the initial trend post-retracement. The tools is traced from one extreme of price to the other, and after retracement has ended, the last point of the tool is placed at the the retracement point. This draws several extension levels where price trend is expected to end.
How is this tool used for trading the Touch/No Touch option? The trader should check to see if the price target set for the Touch/No Touch trade is along the pathway of the extension of price action from the retracement end point.
One Touch trade
The One Touch trade is a trade that presents only two possible options.
- the set price line is touched and the trade is a winner payout, or
- the set line is not touched at any one point during the trade, which becomes a losing trade
The one touch trade is specifically designed for those traders who believe that the price will touch certain levels within the duration of the contract but who are unsure whether the price action will sustain it’s levels until the trade finishes.
There is a much higher payout for this trade as it is more difficult to get a positive outcome with this trade. The trader needs a lot of momentum, so it is suggested that the volume indicator is added to the mix. When the amplitude of the volume indicator is higher, it gives the trader a better chance of having strong price movement that will respond to the trade.
Another good alternative is to follow releases in an economic calendar where events influence the markets and make them move considerably.
A trading platform such as that of Binary.com allows traders to set their expiration times. So longer expiry times for the Touch/No Touch option give trades better chance to end up in profit. Other platforms provide a maximum of 45 minutes expiration, so you have to be sure that your trade can hit the strike price before expiration. The One Touch trade has a set one-week expiry.
It is essential to practice the Touch trades on a demo platform to ensure familiarity with this trade type and to understand how to use the indicators presented to make this trade a positive one.Published in Education