Many traders specialize in trading a certain type of binary options. Other traders, however, trade more than one option type to maximize their profits. Two of the most effective binary option types to combine are touch options and high / low options. This article will show you a strategy to make more money by combining these binary option types.
Investing in either option type depending on the trading range
High / low options are a relatively secure investment. All you need to do to win your high / low option is to predict whether the market will rise or fall over a given period of time. How far the market moves in that direction is not important. Touch options, on the other hand, are a more risky investment. To win a touch option, you not only need to predict in which direction the market will move, you also need to predict how far the movement will reach. That is far more difficult.
The upside to touch options is that they generate a much larger payout in case you win your binary option. While high / low options only generate a payout of 65 to 85 percent, touch options can generate up to 500 percent payout.
This shows one thing: In a market environment where you can win a touch option, you should invest in a touch option to make more money. When the odds of winning a touch option are getting too small, however, you should invest in a high / low option. It is better to get a small payout than to get no payout.
Now, what you need is a tool to determine which kind of market environment you are in and whether it makes more sense to invest in a touch option or a high / low option.
How to determine whether to invest in a high / low option or a touch option
The tool to determine whether to invest in a touch option or a high/ low option are momentum indicators such as the average true range (ATR). Momentum indicators help you to estimate how far the market can move over a given period of time. In this case, the period of time you need to analyze is the time until you binary option expires.
Let’s assume this scenario: You are expecting an upwards movement. You are trading a 5 minute chart. Your broker is offering a touch option with an expiration time of 15 minutes and a target price $2 from the current market price. The ATR has a reading of $1.
In this case, you start with the ATR: The ATR value indicates how far the market has moved on average per period over the last few periods. Currently, the ATR a value of $1. The target price of your touch option is $2 away. This means, it should the market two periods to reach the target price.
Since your touch option has an expiration time of 15 minutes and you are trading a 5 minute chart, your touch option will expire in three periods. That means, your touch option will expire in three periods, but the market should reach the target price in only two periods.
In other words: You are very likely to win this touch option, if you have predicted the market direction correctly.
Should the target price of your touch option be further away from the current market price, this example might look differently. Let us assume that in the same market environment as in the first example, your binary option broker offers you a touch option with an expiration time of only 5 minutes.
Now, the target price of your touch option would still be twice as far away as the ATR’s value. The market, however, would have only one period time to reach that price. That is unlikely to happen. In this scenario, investing in a touch option would be a bad decision. Most likely the market will not reach the target price and you will lose your investment. To win a trade in this market environment, you should invest in a high / option.
This example shows how you can use trading range indicators to combine touch options and high / low options.