Monday, September 16th, 2013 by James Franklen
Many binary options brokers provide their clients with a ‘Touch’ or ‘No-Touch’ option. The idea is simple; if a trader believes that the price is GOING to touch a certain price level in given time period, the trader will choose a ‘Touch’ option for that. If the trader believes that price will not cross a certain price level for a given period, the trader sets a ‘No-Touch’ option.
There is a problem with such trade setups on the face of it. It is obvious that without a clear indicator of where the price will move next, it is difficult for a trader, particularly a new trader to determine whether to go for a touch option or a no-touch option. The trader requires help in the form of a strong trend or a breakout to make his move. Otherwise, the trader is risking his trades to lesser logic.
In order to give best logical basis for a decision on whether to go for a touch or no-touch option, a trader can derive help from triangles. Prices seem to move haphazardly; however, closer inspection shows that there are patterns in them. Triangles are price patterns that have been studied by derivatives and stocks traders for long. There are three types of triangles; ascending, descending and asymmetrical.
Ascending and descending triangles demonstrate an inevitable price breakout. In ascending triangle, the resistance level more or less remains constant, whereas the support line gradually moves upward and has shorter candle bars. The triangle here indicates that the sellers; the resistance line, are struggling against the buyers; the bottom line. On the other hand, in a descending triangle, the support level falters against the downward slopping resistance line and shorter candle bars.
Ascending triangle shows a bullish price breakout, whereas the descending triangle shows a bearish price breakout.
With triangles at hand, the trader gets the logic for his next move. The trader knows what the price pattern means and where it will be leading him. The trader can now decide easily which areas of the chart he should appoint as a possible price ‘touch’ area and which as a ‘no-touch’ area.
The trader needs to know how deep would be the breakout, and decide the price level. To help with deciding which price level to choose for the touch or no-touch option, the trader can take the help from pivot point; it is an average of opening, closing, high and low. It is taken as crude barometer of how far the price can go.
The last aspect to decide is the period of the option; the time until it expires. A good starting point considered is the time-frame on which the triangle and pivot analysis was performed. For example, if the analysis was for four hours, use that time-frame. Most traders set their touch or no-touch option between 15 to 30 pips below the support line or above the resistance line.
This strategy is beneficial for all sorts of traders. One just needs to be active in watching out the screens and developing a good sense of pattern recognition.