The most profitable way of trading binary options is trading touch options. To win a highly profitable touch option, you need to predict whether the market can reach the touch option’s target price. This article will show you how to do that.
Can your touch option reach the target price?
Touch Options generate the highest payout of all binary option types. They are a lucrative type of binary option that most traders would like to trade.
Unfortunately, though, most traders shy away from touch options. High / low options are still the most popular option type, even though they generate much lower payouts. With high / low options, you can only get a payout of about 85 percent of your invested capital. With touch option, on the other hand, you can get a payout of up to 500 percent.
On first sight, this aversion towards touch options is surprising. High / low options and touch options both require you to predict which direction the market will move in. The only difference is that touch options also require you to predict whether the market will move past the target price or not.
The target price seems to be the problem. Apparently, many binary option traders cannot predict how far the market will move over a given period of time. Instead of learning how to make this prediction, they foolishly stay with the much less profitable high / low options.
This is staggering. Predicting whether the market can reach the target price of a touch option is not too hard. Here is what you have to do:
1) Collect your data
To know whether the market can reach the target price of a touch option, you need to do a simple calculation. All the data you need for that is easily obtainable:
- The distance from the market to the target price.
- The expiration time of your binary option.
- The current value of the average true range (ATR).
2) Calculate how long it will take for the market to reach the target price
Now that you have collected all your data, you just need to make two simple calculations. The first of them is to predict how long it will take for the market to reach the target price of your touch option. That is why we need the value of the ATR. The ATR calculates the average trading range of a single period over the last time. This means, the ATR will tell you how far the market has moved on average over a single period.
Since you are operating on very short time frames with binary options, the market environment is unlikely to change fundamentally since the last few periods. It is therefore reasonable to assume that the ATR’s value indicates how far the market can move in a single period for the near future.
When you are thinking about investing in a touch option, you have predicted that the market will move in a certain direction. If your prediction is right, the next few periods will all point in the same direction.
That enables you to predict how long the market will take to reach the target price of your touch option: Simply divide the distance from the current market price to the target price by the ATR’s value. Then you know, how many period the market will likely take to reach the target price.
3) Calculate how long it will take for your option to expire
Now to the simplest part of the calculation: To know how many periods it will take for your touch option to expire, simply divide the expiration time of your touch option by the time frame of your chart. If your touch option has an expiration time of 30 minutes and you are trading a 10 minute chart, you know that the market will create three candlesticks until your option expires.
4) Compare the values from point 2 and 3
All you have to do know whether the market can reach the target price or not is to compare the values from point 2 and 3.
Should the market reach the target price before your touch option expires, investing in a touch option is a good decision. Should the market reach the target price of your touch option after your option expires, you should stay away from a touch option. If applied correctly, this simple decision making process can easily double your profits with binary options.