Trading Binary Options with Boundary Strategy

Trading Binary Options with Boundary Strategy

Submitted by adil on Mon, 05/19/2014 - 09:38

Understanding the Basics

The boundary trades or IN/OUT trades are the type of contracts where trader predicts whether the price of an asset will remain within a defined range (IN), or breakout  and end up outside of the range (OUT) at the end of expiry time. Unlike CALL/PUT contracts, this type of binary option trading is not offered by all brokers, sometimes these trades are offered as RANGE trades. You will find such contracts only on few proprietary trading platforms.

As is the case with CALL/PUT options, if the trader wants to be successful with Boundary strategy, he must know when to place an IN or OUT contract. You must keep an eye on following factors relative to the contract you want to make:

IN: It is preferable to make this contract when a major press release or market movement is expected in coming days. Usually the timeframe is quite small for prices to remain within a specific range, so utmost caution must be observed with expiry times when trading through IN contracts.

OUT: Usually breaking news of very high importance, or a massive trading performed by a major market player can create a breakout in price trends. An inter-continental buyout which triggers cash flow in big amounts will have same effect but in relatively slower fashion.

Implementing the strategy:

How to decide which of the two IN or OUT trade is the best for trading at a particular instant. This depends upon

• The asset you are trading on
• The trading platform you are using
• The expiry time you can have for the trades
• The news sources you have access to

Every factor counts in to determine which the best moment to trade a specific contract is.

Making an IN contract: After analysis, you find that an IN trade will produce more profits, here is how you do it: Find the date of the expected news release, and create a trend chart of price highs and lows from three days to the announcement. Take note of the support and resistance levels. When two days remain, again create the chart and check if the previously identified support and resistance level still hold. If yes, make the contract with an expiry time ending 24hrs before the news announcement. Keep the price barriers slightly lower than support level, and slightly higher than the resistance level. The trade must expire before the day news is expected to be announced, because price fluctuations start hours before news is to be made public.

Making an OUT contract: You can setup the OUT trade in the same manner, but with a slight difference. The price barriers must be used in correspondence with the support and resistance levels. Secondly, the expiry time must be at least 48hrs to allow the news item to circulate and start producing desired results of breakout in price trends before your OUT trade expires.

Since markets are experiencing fluctuations all the time, trading with OUT contracts is much safer for novice traders. Risks are low, so are the profit returns. This is why you must start learning how to minimize high risks involved with IN trades, only then you will be able to unlock the real big profits with this strategy.