Binary Options Range Trading Strategy

Most binary options brokers offer a type of options which are known as touch or no-touch binary options. This type of option is ideal when you want to trade range bound markets. Although trends are fairly easy to identify on price charts, the same cannot be said about ranging markets. To overcome this problem, we can use MACD indicator for identifying ranging markets.

MACD Indicator In Action

The MACD indicator is a very versatile tool as we have found in our article “Using The MACD For Trading Binary Options”. Normally, it is used by forex traders for spotting changes in the momentum and direction of a market trend. However forex traders have also came up with the idea of using the MACD indicator for spotting ranging markets. This is done by adding two additional lines to the MACD histogram like in the diagram shown below, one above the zero line (0.0005) and one below the zero line (-0.0005). The number of decimal points will depend on how many decimals places that the broker is using. Normally this is four decimal places but some brokers do quote prices up to five decimals places.

Once these two lines are added, we can start to clearly see when the market begins to range between the two levels.

Defining The Support And Resistance Levels With Bollinger Bands

Although we have identified a ranging market with the MACD indicator, the next stage is to set the price range which bound the prices, in other words the support and resistance levels. Normally used for measuring volatility, we can also use upper band and lower band to show us the confines of the ranging market to help set the price ceiling (Resistance Level) and price floor (Support Level) for our upcoming trades.

With the price ceiling and price floor drawn, we have now two strike prices to work out our option trades with. Next, decide on which type of option contracts that you want to trade.

Benefits of this Strategy

What is good about this strategy is the fact that it rely on two indicators to confirm the ranging market and produces very reliable signals. Most of the time, most ranging trading strategy rely on just one indicator for confirmation. Using these two tools in this manner is definitely a great help in spotting ranging markets and setting the range of prices to work your options in. Nevertheless, we do have to bear in mind that no two assets will react in the same manner so this strategy will still require some minor tweaking to get things right.