High/Low Options Explained

The High/Low binary options contract is a trade in which the trader aims to profit from the price of the traded asset ending higher or lower than a chosen price target. The price target is known as the strike price. On some platforms, there is a variation of the trade that makes the market price at the time the trade is opened, the strike price. On the Betonmarkets platform, this is known as the Rise/Fall trade. Whether the trade uses the market price as the strike price or allows the trader to set a strike price, the basic principles of this trade are the same.

The key principle is to be able to do two things:

1)    Predict the direction of the asset.

2)    Set an expiry that will end the trade in a profit position.

To be able to trade the High/Low, the trader should open an account with a broker that offers this option type. The good news is that like Touch options, the High/Low trade is available on every binary options trade platform out there. The High/Low goes by several names. Up/Down, Above/Below and Call/Put are some of the other names of the High/Low trade contract that you will come across when using several platforms.

Trading the High/Low

There are three ways to trade the High/Low trade.

a)    The trader can use a manual system of trading, using technical analysis.

b)    There is an option of trading with a customized indicator, which is a semi-automated method of trading.

c)     Traders can trade the High/Low option using the news.

a)    Manual Trading with Technical Analysis

When trading the High/Low with technical analysis, the aim is to use charts in order to get trading signals from them, and then use this information in choosing which of the two options contracts will reflect the trader’s expected outcome.

The first step with this trade type is to get a source for charting information for the binary options asset to be traded. This can be obtained from the MetaTrader4 platform of brokers whose asset listings will include assets from the various asset classes. So the MT4 to be downloaded must have assets listed under stocks, commodities, indices and currencies. Forex Capital Markets LLC (FXCM), FxPro and Finotec are brokers whose MT4 platforms offer assets in these classes. Visit the websites with these platforms and download them accordingly.

The next question would be: what information would we be looking for on the charts to support our decision to either buy HIGH, or LOW on the platform of our preferred binary options broker? The following information would be pertinent:

i)             Chart patterns (reversal and continuous)

ii)            Candlestick patterns

iii)          Signals from indicators

There are several chart patterns that traders can use for deriving trade signals. Some of these patterns are triangles, flags and pennants, rectangles, wedge patterns, tops and bottoms (double and triple), rounded tops and bottoms, etc. These patterns always point at the price of an asset either heading upwards or downwards. So with chart patterns, a mammoth of trading information can be derived. Let us see this example below:

High/low options chart

This is a one hour chart of the USDJPY, clearly showing a bullish continuation pattern, the ascending triangle. After trading within the boundaries of the triangle, the price of the asset is expected to eventually break out of the triangle’s horizontal support in an upward direction. Armed with this information, all a trader needs to do is to head over to the binary options chart, and choose HIGH, opening the trade at the level of the rising triangle support (the lower trend line) close to the apex of the triangle, using the horizontal support as the strike price. This trade is one that may take a few hours to days to materialize, so an expiry of at least two days is required when the signal comes from a one hour chart.

Similar trades can be done using bullish and bearish candlestick reversal and continuation patterns, as well as indicators. For instance, the MACD indicator can be used to spot price divergence, which is then used to place the accompanying HIGH or LOW trade for a positive or negative divergence. Trading with candlesticks requires that the trader study candlestick patterns with respect to recognition.

b)    Trading with a Customized Indicator

A customized indicator does a number of things for the trader. It can be applied to the chart, and give clear visual and audible sound alerts on where the price of the asset is headed. Some of these indicators can be purchased online. One of such indicators is the FX Turbo Marksman. There are others. They word by displaying a red arrow/circle/box above a candle indicating that the asset will move downwards, or a green arrow/circle/box below a candle showing that the asset will head upwards. Some of the indicators will actually show the entry price and the expected range of movement, and this information can be used by the trader to set a strike price and expiry for the trade. This is a great way of trading the High/Low option. The writer has tried one of such indicators and has had an 80% success rate. The challenge is with setting an appropriate expiry time, but the time frame of a chart and the length of time the signal candle stays open can be used as possible clues as to what expiry times to use for your trades.

c)     Trading High/Low trades with the News

This is the trickiest trade of all three methods. The key is to interpret the news and determine at what point to pull the trigger. This is because even when the news shows a direction that the asset will probably assume, the price behavior does not always follow a defined pattern. This method should only be used by experienced binary options traders who have also traded the asset in question in its traditional market.

Using the first two methods of analysis, it is possible to achieve a high success rate when gambling for real money with High/Low options.

 

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