The Boundary and Ladder Trading Strategies

The Boundary and Ladder Trading Strategies

Submitted by adil on Fri, 05/30/2014 - 23:08

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There are many trading strategies that traders are familiar with, such as, Double up Strategy, Straddle or Market Pull Strategy. However, the Boundary Strategy and the Ladder Trading Strategy are new to most of the traders because these strategies are only used in a market where Ladder Trades and Range Trading are offered. But being a trader, if you want to apply these strategies, it is important for you to understand what these strategies actually are and how they work.

The Boundary Strategy

If you want to apply a boundary strategy, you should make sure that your trading platform allows range trading, because a trader usually looks at the lower and upper end of the underlying asset with this trading strategy. It doesn’t work like placing a put option or a call option; instead the main purpose of this strategy is to see if the option will keep moving within the upper and lower range of price levels. If it expires within these two levels, the trade is considered to be in the money. Suppose, a trader purchases an option and its expiry time is one hour. The upper price level of that option is $150 and the lower level is $90. If the price of underlying asset stays between the defined range of $150 and $90 during the one hour expiry time, he will earn profit from that trade. But if the price of the asset falls below $90 or exceeds $150, the trade is out of the money and trader will suffer a loss on that trade.

You are required to keep observing the movement of an asset’s price if you want the boundary strategy to be successful. A strong background is a must, if you want to determine the average price of an asset and assess the likely highs and lows in relation to the price of the underlying asset. The average price means a level where price stays most of the time. The boundary strategy is also beneficial in situations where a trader wants to find out whether the asset’s price will break out. This version of the boundary trading strategy is also called ‘out strategy’ because when a trader applies the strategy, he should know that the longer the time period of the trade is, the riskier it will be. Therefore, it is important to understand that a trader shouldn’t go for longer time durations when he or she is using boundary trading strategy.

Ladder Trading Strategy

It is a new trading strategy as compared to other strategies, and many traders still don’t know about it. The name ‘ladder trade’ has been derived from the way a trade is structured. Ladder trading strategy is used to determine whether the price of an asset will move up or down the price ladder.

Usually there are three sets of strike prices and each one of them has a different expiry period. Therefore, the price of an asset should exceed above or decrease below the defined strike prices within a given period of time in order to have a successful trade. Despite it being hard to be predictable, this strategy is beneficial for traders because they get to choose the expiry period and the strike price.

However, traders should learn advanced binary options strategies if they want to be successful in the long run. The best part about being an active trader is that you get to gain more knowledge and learn the trading skills whether or not you intend to learn them.