Touch 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.

There are several variations of Touch options:

a) Touch/No Touch
b) Single Touch
c) High Yield Touch

Trading Touch Options

First of all and as discussed already in an earlier post, remember that there are disadvantages to accepting a binary options bonus when you register for an account at a new broker. Very simply, trading touch options will require two methods of analysis and signal generation. These are as follows:

a) A manual trading system based on chart pattern and candlestick analysis.
b) Using the news to trade.

The use of customized indicators is not very suitable for trading touch options. The two methods listed above will do.

The Touch is more complex than the High/Low trade, as this time around, your strike price is your target price. Unlike the High/Low trade where you need your expiry not to stay open too long for the trade to reverse on your position, you actually need the expiry to stay open for as long as possible for the market to hit your strike price. Once the price has hit the strike price, your trade is credited as a profitable one, even if your expiry date is two months away.

a) Manual Trading System Based on Chart Patterns and Candlesticks

It is very important to know not just the direction of the trade, but the extent of the market move. The extent of the market move is what will guide the placement of the strike price in a Touch trade.
If you are using chart patterns to determine the touch strike price, you must first understand what trade you want to place.

– Will you be trading the Touch/No Touch (which has two correct possibilities, depending on your trade direction)?
– Will you be trading the Single Touch trade?
– Will your ambitious mindset kick in to target the 500% payout of the High Yield Touch trade?

Let us assume you are trading the Touch/No Touch, which is available on the Betonmarkets platform. This trade gives you two trade options. For instance, if you believe that the EURUSD will rise and touch a target, then it also means that the EURUSD will not touch a target located in the opposite direction. Look at this chart below:

This chart is a one hour chart for the EURUSD and is indeed a very interesting one. This is because the chart actually provided 2 tradable signals based on 2 different chart patterns. The first was a symmetrical triangle, which is a neutral chart pattern because it can give a bullish or bearish breakout. Following the eventual bearish breakout, a bearish continuation flag pattern also formed, followed by a further continuation of the existing trend to the downside.

Now this is why the triangle patterns are such sweet patterns to trade the Touch pattern. Before the price breaks out of one of the triangle boundaries, the price first trades within the triangle. You only need two points at which the price makes highs or lows to trace the lines that form the boundaries of the triangle. Once the triangle is traced, the price will keep bouncing from one boundary to the other until the price eventually breaks out where the two lines are about to meet. Armed with this information, these are the following points at which the trader could have place his Touch trade targets:

– Point 1, 2 and 3 on the symmetrical triangle will serve as strike targets for 3 Touch trades.
– Point 4 represents anywhere along the breakout path from the symmetrical triangle.
– Point 5 represents a few pips after the downside break of the bearish flag (in purple).

This chart alone would have yielded several trade opportunities for both the Touch trade and the No Touch opposite trade. Obviously if an asset will touch a target in one direction, there is no way it will touch a target in the opposite direction.

b) Touch trades with the News

If you are good at news trading, you can possible use it to trade the High Yield Touch options for a big payout. High Yield Touch options are by nature, very difficult to win because the default strike prices set by the brokers are nearly impossible to hit. The only chance of winning with such a trade is for the asset to attain a huge breakout. Prices literally have to be on fire for this to happen.

There are certain news trades that can be used to achieve the High Yield Touch. If the results of these trades surprise markets, the chances of winning are increased. However, you still have to get the direction correct and then hope that the price will be able to achieve the set target. The following news items can be used for the High Yield Touch options, which are traded on the SpotOption platforms:

a) GDP reports.
b) Interest rate decisions.
c) Retail Sales.
d) Crude Oil inventories (for the crude oil asset).
e) Non-farm Payrolls and other employment data.

These trades must be rehearsed on demo before being attempted in the live market, otherwise they will go awry.

The most preferable scenario is to use the technical setups to trade the Touch binary options. These are more predictable than using the news trades.

Tagged with: high yield touch options • single touch options • touch/no touch options