The range type trading option was recently introduced to the market and the leading brokers already display and include this type into their standard offer. The range option is a type of binary options enabling traders to choose a price range that the chosen product will stay in until the expiration date. The asset price is not to exceed the given timeframe selected by the trader. The range is often called a channel because it resembles one. The broker sets the range and the trader selects the asset, the investment amount and decides whether the price will stay within or exceed the range. You will easily recognize the channel on your chart after placing your trade, because it will assume a different color than the rest of the chart. This binary options type is more suitable for experienced traders who already know the market and who have developed relevant trading strategies. Channel trading has a great return rates up to 300% which many traders find appealing. This type can also be used the opposite way and is then called the Out of Range Trade. Hereby, traders bet that the price asset will break through the predetermined range by the end of the trade.
How Range Trading Works?
It is easy to understand range trading, but figuring out winning strategies can be complex. We already said that the main idea is to predict if the asset price will stay within or exceed the boundaries of the given range. The high and low prices that border the so-called tunnel will be displayed. After you place the trade, you will be able to see the asset price move up and down reflecting the current market conditions. This kind of trade is usually offered with a 30 minute or a 24 hours expiry time. This is just a general indication given that timeframes vary from broker to broker. Channel trading requires technical analysis and they can be profitable in short-term or medium-term trades. Assets of medium volatility are the recommended choice when opting for range trading. Volatility is the main feature determining your profit. Enhance your profits with this strategy by analyzing and combining other factors related to assets and volatility.
Before Range Option was an Option
Back in the days when the binary options range type was not available as an option, it had to be “chased” or tracked down on the chart. It used to be a great indicator of the right timing to sell or buy a position. This technique indicated or still indicates the ideal selling and buying points. The best time for selling a position is when the asset price moves to the upper boundary. The best condition for keeping a position is when the asset price dangles in the middle. We can see that the range type is derived from this trick of traders who used the range patterns as trading signals.
Common Mistakes with Range Option
- Your first task is to find an asset, possibly one that moves rhythmically. Unfortunately, one of the most common mistakes made by traders is that they assume that the trends will stay within the channel, but without a strategy, it is most probable that the trend will break through the channel.
- Traders often wait for the price to touch the trend line before they buy or sell it. Traders have to understand that the asset price will not move right to the trend line and then miraculously bounce back into the channel range. Therefore, if you see that the asset price is about to move over or below the trend lines, sell or buy your position before it is too late.
How to Apply the Range Option?
Let’s say you want to trade stock of a well-known company like Google. You believe that Google’s stocks will be traded between $150 and $155 next week. If the stocks should end up at $149 or $156 you will lose your investment. But if the stock price stay within your predicted range ($152, $154, etc.) you will win your trade.
- Be careful when using this type of trading for the first time. Make sure to have a strategy to follow and do not invest on the basis of your gut feeling.
- Watch the news and gather market information. For example, you will not be able to predict whether stock prices of big corporations go up or down if you are not familiar with the financial situation of the company.
- One of the tricks is also to diversify your trades by investing less money in multiple trades. This means that you won’t put all of your deposit in one or two trades, but rather proportionally divide your investments to cover multiple trades. In this way, you will enhance your winning chances.
- Play by the market rules! Always bear in mind that the market should dictate your decisions, regardless of your emotions and gut feelings. Stay professional and apply your knowledge and the relevant strategies.
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