Binary Options Strategies: Chapter 6. Range Trading
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Offered by most binary options brokers, Touch or No Touch binary options are ideally suited for trading markets which are ranging. To help you identify if the market is ranging or not, you can use the Moving Average Convergence/Divergence (MACD) indicator.
Using the MACD Indicator
An extremely versatile indicator, the MACD is normally used by traders for spotting changes in market trend and its momentum. Nevertheless, it is also possible to use the MACD indicator to help you to spot a ranging market. To do this you will have to make some minor adjustment to the MACD histogram by adding 2 more lines above and below the zero line as shown in the diagram below.
The value of the lines, 0.0005 and -0.0005, will depend largely on the number of decimal places that your chart platform is using. If your chart platform happens to quote you with 5 decimals places, then the lines should be up to 4 decimal places. After adding these 2 lines, any activity that hovers around the zero line and between the 2 lines above and below is an indication of a ranging market. The great thing about using this method to detect ranging markets is the fact you are able to do so while trading in real time. Once you are confident that the market you are trading in is ranging, the next step will be to define the resistance and support levels of the market using the Bollinger bands.
Using Bollinger Bands to set the Resistance & Support Levels
After identifying that the market is ranging, you will want to define the range of prices which the market is ranging in, which is the resistance and support levels. Although the Bollinger bands are used for measuring how volatile the market is, the two bands also indicate the confines of the ranging market. Hence, we can use the upper band and lower band to define the resistance & support levels respectively. Once you have done this, you will end up with 2 strike prices to work with for your binary options. The last step is just to decide what type of contracts that you want to trade with.
Reliable Signals
Because you are using two indicators to help you confirm the market, you end up with very reliable indications about the state of the market. Another key benefit of using this method to trade ranging markets is the fact you also get your strike prices defined for you by the Bollinger bands. Rather than guesswork, you have a close estimation of what the strike prices for your options should be.
You can go back to chapter 5 and read about Multiple Time Frames Trading Strategy
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