With touch options, you can earn up to 500 percent in a few minutes. To become a successful trader of touch options, you need to understand the characteristics of this unique binary options type and how you can translate them into profits.
While touch options differ from high / low options, they follow the same basic principle: There are only 2 possible outcomes, and you have to predict which outcome will occur. If you are right, you win the predefined payout, if you are wrong you lose your investment.
To make your prediction, your broker offers you a target price. You have to predict whether you think that the market will reach this price or not. Many brokers use far away target prices, which justifies the high payout of up to 500 percent, but also makes no touch options impracticable. Therefore, most brokers only offer touch options.
In contrast to high / low options, the market does not have to remain at the target price until your option expires. As long as the market reaches the target prize at least once, even if it is for the shortest possible time, you will win your touch option and get the full payout.
There is nothing you can do to influence the target price. Whichever level your broker defines, you can either accept it or not invest. You can, however, try to use a different expiry. Since a longer expiry gives the market more time to reach the target price, longer expiries come with a further away target price.
If you want to trade a specific event, choosing a shorter expiry to get a closer target price can make a lot of sense. If you want to trade the effect of news on the market, for example, you know exactly when the news will be released, which allows you to tailor your option to the specific point in time when the movement will happen. By choosing a shorter expiry you do not risk anything, but you gain the advantage of a closer target price.
Conversely, when you expect the market to reach a certain price level but do not know the exact time it will take for the market to get there, you can profit by using the longest expiry that still offers a target price within the reach of the market. This type of investing makes sense when you want to trade the limits of a specific market formation such as continuation and reversal patterns, support lines, or trends.
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Generally, investing in a touch option requires you to weigh the advantages of having a closer target price and a longer expiry. As with all aspects of trading, experience will help you find the golden mean.
The obvious advantage of touch options is the high payout. Offering payouts of up to 500 percent, touch options will win you on average 4 to 5 times as much as a high / low option, thereby offering a significantly higher potential.
On the other hand, there are many trades where you would win a high / low option but would lose a touch option. If a stock is currently trading at $100, for example, a price movement to $100.01 would be enough to win you a high option, but it would not be enough to win you a touch option with a target price of $100.50.
Consequently, most traders use touch options as an addition to high / low options. Whenever these traders identify a trading opportunity, they ask themselves if the market has a realistic chance to reach the touch option’s target price. If so, they invest in the touch option, thereby gaining the chance of a payout 4 to 5 times as high as with high / low options. If not, they take the safe alternative and invest in a high / low option.
Therefore, the key to success with touch options is to know when the market can move far and when it can not. Of course, there are some obvious examples where the market can move strongly, for example after the release of important news, but in most cases, you will have to determine the length of the potential movement by looking at past price movements without any outside help.
To make such decisions easier, traders have developed momentum indicators such as the average true range (ATR). Those indicators measure how far the market has moved on average for each past period, thereby allowing you to estimate how far the market will move in the future.
For example, if your touch option has an expiry of 30 minutes and you look at a 10 min price chart, you know that it will take 3 periods until your option expires. If the ATR has a value of $0.5, you can multiply this value with 3 periods, thereby gaining an expected range of $1.5.
If your touch options target price is closer than $1.5, it would make sense for you to invest in the touch option. If the target price is further away, it would be better to go with the high / low option.,
Of course the result of this calculation, and many traders adjust the final result, but it gives you an indication to what you can expect, thereby allowing you to take advantage of higher payouts and higher profits.