In this journal entry I am going to demonstrate how to use Range Trading Strategy. This strategy was used in several trading sessions with a range of underlying assets. Thanks to its simplicity yet effectiveness, range trading strategy is a perfect option for those who are new to binary trading and are looking for the starting point. If you are one of them, you landed at the right page.
Actually, this article can also be used as a beginner’s manual on trading with range trading strategy. You can always reference this piece to refresh your knowledge when you trade using the strategy. In this article you will find out:
- How to use Range Trading strategy to enter profitable trades
- How to spot the right moment to the enter a trade
- What steps to follow in order to make trades according to the strategy
- What should you show on your chart to spot the right moments
Range Trading strategy summary
Range trading strategy is a simple yet profitable approach to trading binary options. As it’s only the direction of the price which matters in binary trading, this strategy helps identify that. The strategy is applied to the situation on the market when the price is trending sideways (i.e. there is no predominant upward or downward direction). In this case, the price usually hits support or resistance levels and bounces back. The trading opportunity emerges when the price hits either support or resistance level. Call option is to be purchased when the price is at the support level while put option is to be purchased when the price is at the resistance respectively.
Furthermore, the trading opportunities are to be confirmed by technical indicators such as RSI and Stochastic. They show whether the underlying asset is currently overbought or oversold. When it is overbought, that’s an additional confirmation for purchasing a put option. If the underlying asset is oversold, that makes a call option opportunity. The range trading strategy works perfectly fine with option expiry time of around 20-30 minutes. Therefore, 5-minute chart timeframe can be used as an optimal one.
In binary options world, it also matters what broker you are trading with. Each broker has different returns, features, trading platform or trading conditions in general and it’s very important to pick and choose the right one. Personally, I trade with Anyoption. The detailed information about this broker can be found at Anyoption review page.
With range trading strategy, it all comes to following these simple steps:
- Confirm the underlying asset’s price is moving sideways on 5-minute candlestick chart
- Identify and draw support and resistance levels by connecting several points of contact of either horizontal level without them being broken
- Wait until the price hits either support (call option) or resistance (put option) levels
- Confirm the oversold or overbought status of the underlying asset using RSI and Stochastic indicators. You can easily add these indicators at your charting software. For example, they can be added from “Indicators” menu in the charting software I use
- Purchase a CALL option if the price hit the support level. Purchase a PUT option if the price hit the resistance level.
And now… let’s move on to the hands-on application of the strategy.
This trade was taken with a currency pair – EUR/GBP. First of all, the price direction was confirmed as sideways direction as there is no predominant price trend. After that, support and resistance levels were drawn by connecting points of contact. It turned out that the price hit the resistance level, slightly broke through it and started moving back. The last confirmation signal was done with technical indicators showing overbought status of the asset. This made an opportunity for purchasing a PUT option which I did with an option expiry time of around 20 minutes.
Eventually, the trade was executed in the money which made me 70% profit.
Another trade was taken with a currency pair EUR/USD. The first step was to confirm sideways trend on the market which was the case. Then support and resistance levels were drawn. The price hit resistance level while the RSI and Stochastic demonstrated overbought asset which made a PUT option opportunity. The option expiry time was around 20 minutes.
The option expired in the money which made me a profit of $75.
Finally, the trade was taken with NZD/USD currency pair. This setup was slightly risky as the trend was rather showing an upwards direction, however, I decided to take the trade. Technical indicators demonstrated overbought asset and I entered a trade with a PUT option with expiry time of around 25 minutes.
Luckily, the option expired in the money with 75% profit.
When trading binary options you should always keep in mind that no strategy will give you a 100% winning rate. It’s always important to keep learning and testing the strategies and Range Trading Strategy is definitely one of the better ones to begin with. If you have any questions on the application of this strategy, do not hesitate to ask in the comments below.