Types of Trades for Ranging or Trending Markets
As a binary options trader, it will serve you well to learn to recognize different types of markets. Markets can take on different personalities depending on economic conditions. The interplay of these factors is quite complex, but you can learn to recognize what type of market you are in even without becoming an economics expert. Different types of binary options trades are ideal for different types of markets. Here are four different market situations you should learn how to recognize:
A bullish, trending market. This is a market that displays a strong upward trend over a certain length of time. Note that a market which is trending on one time frame may not be trending on another. Looking at different time frames gives you a sense of context.
A bearish, trending market. This is a market displaying a strong downward trend. It is the opposite of the bullish, trending market, but behaves in a similar fashion.
A ranging, or consolidating market. This is a market which is displaying neither a strong upward or downward trend. Oftentimes if you have moving averages plotted on your chart, they will be weaving tightly together, not separating and moving apart and upward/downward. Bars may be flat and close together or be making short moves up and down. Markets spend much of their time consolidating. It can be tough to profit during times of ranging price, but if you can learn to do it, it will give you an edge.
A choppy market. This is a particular type of consolidating market that I feel deserves its own special mention, because it is particularly lethal. Markets displaying a lot of chop will present a trade with whipsaws and fakeouts. Price will swing one direction and then abruptly swing the other, back and forth and unpredictably. These are usually poor times to trade.
You can use this youtube.com video for a visual explanation as well:
Binary options brokers offer a number of different types of trades. Most commonly, you will encounter High/Low, One Touch, No Touch, and Range trades. You may also see 60 Second trades or other “Turbo” options (usually 2-5 minute trades). Which market conditions are ideal for each type of trade?
- High/Low. The most basic of all binary options trade types, this is simply a trade where you wager that price will be trading above or below its current level when the time expires. You can theoretically use this type of trade profitably in ranging or trending markets. You should trade with the trend, if one exists. So “High” is usually most suitable in a bullish trending market, and “Low” is usually suitable in a bearish trending market. If you can predict the smaller movements up and down in a ranging market or predict the start of a trend, High/Low can also be used in times of consolidation.
- One Touch. This is a type of trade where you are wagering that price will touch a certain value by the time the trade expires. This type of trade is also ideal in a trending situation, since you are profiting off of price movement. You could also use it in consolidating markets if you believe you have identified a small price shift that will provide you with the necessary move to win.
- No Touch. With this type of trade, you are wagering price will not touch a particular level within the expiry period. In other words, you are wagering on price not moving in a given direction. That type of trade would be smart to take in a consolidating market, because you know that price is not likely to move anywhere fast (unless you spot a breakout coming). It would also be sensible in a market that is trending in the opposite direction of the trigger point. So you might wager that price is not going to rise to a particular level in a bearish market, or in a flat market.
- Range. These are also known as Boundary trades. A range or boundary identifies a channel within which price is currently trading. With a boundary trading, you will either be wagering that price will stay within those boundaries or pass outside of them. If you wager price will stay in the channel, you definitely need to be in a consolidating market. If you are wagering that price will move outside the channel, you need to be in a situation where you are predicting a breakout, or where you are in a temporary consolidation within a trending market.
- 60 Second or Turbo. With these types of trades, you can technically be trading in any type of market—ranging, bullish, or bearish. These trades usually take the form of High/Low trades. The only reason they are grouped off on their own is because they move very fast, and brokers want traders to be prepared for that. You will be profiting off of very small price movements.
You will notice that nowhere in this list did I describe any situation where you would want to be trading during choppy market conditions. The reason for that is that you are unlikely to ever profit when the market is choppy and there are a lot of fakeouts. Most traders who are profitable simply sit out these times and wait for conditions to improve. Spotting a good setup is not enough if you want to be profitable. You need to be trading in the right context. A better way of putting it would be this: You need to take market conditions into account as part of your understanding of a great setup.
Binary options trading gives you a number of different ways you can profit in trending and ranging markets. The fact that there are multiple types of trades available is a great boon all by itself. Traders in Forex or the stock market often struggle to profit during consolidation since they can only profit off of price movement, whereas with binary options, you can profit when price is trading even in a narrow range. You need to choose a broker which offers you the trade types which interest you though; some brokers only offer High/Low.
Another benefit of binary options trading is the fact that there are so many different types of assets you can trade. When you are stuck with choppy market conditions with a particular stock or currency pair, why not look at another one, or maybe check out an index or a future? You might very well find excellent ranging or trending conditions or spot a breakout happening on another asset. With dozens of different financial instruments available, there is always something to trade with binary options!
If 60 second trades is something that you are interested in – learn all you can about them by clicking here!