Binary options traders use different trading techniques and indicators to increase their chances of winning. Chances are, you might have also used such things. But are you satisfied with the result? Even if you are, you should consider using the Binary Options Range Trading Strategy.
This unique trading strategy has been developed to help traders minimize trading loss and increase profitability. Also, it’s an easy-to-understand market trading indicator, which does not involve any complicated concepts.
But for successfully using this strategy, it’s essential to know what it is and how it works? Also, for better results, you should learn about different types of ranges.
This post explains all the essential fundamentals of range trading strategy in detail.
What is Range trading strategy?
Range trading strategy is an active trading technique that is used for understanding the market. Through this strategy, one can quickly identify whether the assets in the market are being overbought or oversold.
One interesting thing about this trading strategy is that it capitalizes on the fluctuating market range. For limiting the loss, the sideways trend of this strategy is the support and resistance band.
If you want to use it to the fullest, you must buy an asset when the market shows it is oversold. This particular period is also known as the support period. After purchasing the asset, you can further sell it during the overbought period as it symbolizes the resistance period.
The beauty of range trading is that you can implement it in any market situation. But the maximum profit can be earned when using this trading strategy while the market lacks direction. It’s because, at such a time, the range trading is at its weakest.
Here are four expected outcomes that you are likely to encounter when using this strategy.
#1 Trade ends inside the Range
When the trade ends inside the range, it means that the price stays inside of the selected range during expiration. This condition results in In The Money.
#2 Trade ends outside the Range
If the opposite happens, i.e., if the trade ends outside, that means you are In The Money.
#3 Goes outside the boundaries
If you want to profit from the existing trading situation, it’s crucial for the price to break the selected boundary at least once.
#4 Stays between price boundaries
In this situation, the trade does not breach the boundary.
Different types of Ranges
While there are different types of range, the below-mentioned four are the common ones.
This range type is termed a diagonal range because here, the price of an asset decreases or increases through a sloping trend channel. The trend channel can be of any shape, rectangle, narrowing, or broadening.
Also, it’s important to remember that breakout in this range type takes place in the opposite trending movement. This way, binary options traders get an excellent trading opportunity.
But there is a catch. The diagonal range is profitable, and sometimes, it can be seen instantly on the chart. But many times, this range can take years to form. So, it would help if you consider this limitation before taking any action.
Generally, traders can notice a rectangle range when between the lower support level and upper resistance level. This range occurs as sideways or horizontal price movement. Since this range can be found even without any tool, many traders use it.
When you see a rectangle range in the trading chart, you can conclude that there will arise a consolidation period. Not to mention, this range offers better trading opportunities in a shorter time frame.
But one problem with rectangle range is that if you are not looking for long-term patterns, it can misguide you.
Next on this list is an irregular range that does not have any fixed pattern. That’s why one can spot this type of range around the central pivot line. The presence of an irregular pattern in a trading chart shows support and resistance lines crop up around it.
When using this range type, try to find better trading opportunities around the central pivot line. It is because opportunities around support and resistance are hard to detect.
One limitation of this range is that it requires additional tools for giving out the best result.
The beauty of the continuation range is that it unfolds within a trend range and can be easily spotted in the form of a triangle, flag, or wedge. The emergence of this range shows correction against a predominant trend.
The best thing about this range type is that you can trade it as a range of breakout, depending on the trading time horizon. Traders mostly use this pattern to trade during a breakout because it results in a quick breakout. That means you will be getting excellent trading opportunities.
While using this range, you just carefully analyze the situation as it is always spotted inside another trend. It is the main reason that new traders avoid using this range.
How can one trade Range?
You need to remember a few more things to make winning trades by using trade ranges. Here is a step-by-step guide for using this strategy.
Identify suitable market
The first and foremost thing you need to do is identify a non-trending market. It can be done with the help of trading tools like Moving Average. While identifying the market, do not keep the time range more than the period you want to analyze.
Also, if you want to look over the trend’s strength, you can use the Average Directional Index (ADX).
Identifying trading Range area
After finding a suitable market, move towards identifying a trading range area. You can easily do this on a candlestick chart. Once the asset has retreated from the resistance area more than once, locate a range on the chart.
Similarly, it would help to wait until the asset has recovered at the support area more than once. After that, create a straight line, which shows the currency trading range.
A wide trading range shows a volatile market that is profitable. But this kind of environment is equally risky. Also, you can use the Average Daily Range indicator for knowing the risk of a trade.
Set up your entry
You must buy assets near support levels and sell them around the resistance level for the next step. If you want, you can use technical indicators to speed up the process of setting up entry.
Finally, end the process of trading range by managing risk. But how can it be done? Well, it’s simple. Place a stop loss above the previous high when selling the resistance zone for better results. Then invert the process when buying support.
Since range trading is on a tame side, placing stop-loss can save you from making trading blunders; also, if you want to win a better payout, trade around breakouts. That’s because it’s the most active trading period.
Range trading with bots
One of the simplest ways of making more profit by using range trading is taking the help of bots. A trading bot is designed in a way to follow instructions without fail. Also, it has a set of automated instructions to facilitate a winning trade.
Suppose the price of an asset crosses above the support band set the bot to buy. However, if the price crosses below the resistance level, set the bot to sell.
Pros and cons of Range rrading
Here are a few reasons that show why a range trading strategy with binary options is excellent.
- By using range trading, traders can earn considerable profitability even when the market is not trading.
- For using this strategy, you don’t have to limit your trading to any specific hour. That’s because you can apply it to any market.
- The risk of losing trade due to a significant news release is reduced.
- After the range has been formed, you can place a stop loss anywhere.
Along with advantages, range trading also has certain limitations.
- One downside of a range trading strategy is that knowing when the market is within a range and when it will break is not easy.
- Identifying a better range and market is complicated.
- And traders must make constant investments and pay increasing commission fees to trade using this strategy.
Binary options trading is an excellent way of winning a huge payout. But one cannot win the trade without knowing the price direction of the asset. And there is no strategy better than a range trading strategy to keep yourself up-to-date with the market trends and current financial news.
The best thing about the range trading strategy is that it can make you win a massive amount of money even from a non-trending market. But the problem here is that identifying support and resistance is not easy. Also, it’s a little complicated to understand when a range starts and ends.
But if you practice range trading strategy for a while, you can overcome the limitations. So, register yourself with a trading broker that offers access to a demo account, predict the breakout points, and define range areas to make winning trades.