Touch and no touch options can be a valuable instrument to traders able to predict not only price direction, but also volatility. This article on trading touch / no touch options will teach you a strategy based on simple moving averages (SMA) that you can trade with no touch options. Sometimes, this strategy will help you to win an incredibly high percentage of your trades.
To trade touch and no touch options, you have to predict whether the asset will touch a predefined price level within the expiration time of the option or not. For more on the basics of touch and no touch options, read this article.
Trading touch / no touch options with resistance and support levels
An easy, yet secure way to trade no touch options is to combine them with resistance and support levels. When an asset would have to break through a well established resistance or support level to reach the price defined by the no touch option, you can safely predict that this will not happen. With a strategy like this, you should be able to win a good percentage of your trades, securing you a nice profit.
Of course, opportunities to trade no touch options with well established resistance or support levels are rare. Also, finding these price levels requires a great deal of effort, especially when you are trading multiple markets, assets, and currencies at the same time. Very risk-averse traders might find a strategy like this suitable, but for most traders a strategy has to generate more and easier to find signals.
Trading no touch options with moving averages
One way to trade no touch options with frequent, easy to generate signals is by using moving averages. A moving average uses the average price of the last periods to generate a line. Depending on whether this line is above or below the current price it works as a resistance or a support level.
Most trading programs can draw a moving average right into your price chart, which makes moving averages easier to use then regular support or resistance levels.
The trick when using moving averages for no touch options is to combine some of the most commonly used moving averages. When these moving averages are at roughly the same price level they form a strong resistance or support level. When prices get close to that level, your broker will eventually offer you a no touch option that, in order to fail, would require prices to rise above the resistance level or fall below the support level generated by the moving averages.
Investing in a no touch option, thereby predicting that this will not happen is almost as safe a prediction as you can make with binary options. Of course, you can choose any moving average you feel comfortable with. Still, trying a 50 period, a 100 period, and a 200 period moving average is good place to start. Similarly, you can adjust the time frame of your chart according to your preferences.
The smaller the time frame, the closer prices will be to the moving averages and the more trading opportunities you will get. Make sure, however, to use options with an expiration time appropriate for your time frame. Very popular is this strategy with a 15 minute time frame, meaning that every candlestick resembles a 15 minute trading period.
Many traders are also trying to trade this strategy in a time of low trading volume. In these periods prices tend to move less erratic and are closer to the moving averages, therefore creating more trading opportunities. For currencies, this should be the time when the main markets of both involved currencies are closed. The EUR/GBP, for example, will have a lower volume at night time in Europe. For stocks, the late hours of trading can feature a lower volume.