What makes binary options uniquely different from other markets is that it allows traders to earn profit from movements of the underlying assets. Boundary trade is one such example where traders can earn simply by using the movements of the assets they prefer to trade in. Boundary trade is known by different names. Here are some of the most popularly used names:
- In/Out trading strategy.
- Tunnel trading strategy.
- Range option trading.
- Two-way movement trading.
Irrespective of the names used, the only driving principle is:
“You will make profit if an asset stays within two predefined prices or if the asset breaks the price barriers.”
Let us take a small numerical illustration into consideration.
Suppose you are trading in FOREX and your preferred currency pair is EUR/AUD. For boundary trade, there will be two prices, say: 1.2035 (lower price boundary) and 1.3142 (upper price boundary). Remember that these are just arbitrarily chosen and do not depict real prices of the asset.
There are four possible scenarios as provided by Betonmarkets binary options broker:
- Ends Between: In this type of boundary trading, you simply need to predict whether EUR/AUD will end above 1.2035 but below 1.3142 when the trade expires or not. If this happens, you win. During this time, the price can either touch the lower boundary or upper boundary or even break through the boundaries but at the end of the trade, the price must return back between the two limits.
- Goes Outside: During the trading period (i.e. before the expiry of the trade), if EUR/AUD breaches any of the two price boundaries (1.2035 or 1.3142) you will win. In other words, if the price goes below 1.2035 you win or if the price goes above 1.3142, you will win. It hardly matters whether the prices return back to their boundaries or move inside the boundaries. If, even for once, the prices manage to break out from the boundaries you will win. You don’t even have to wait for the entire trade to end.
- Stays Between: In this form of boundary trading, the price needs to stay within the boundary throughout the trading period. If, even for once, the price even touches the lower boundary or upper boundary, you will lose irrespective of whether the price eventually ends between 1.2035 and 1.3142.
- Ends Outside: In this type of range option, you can only win if the price of EUR/AUD is either lower than 1.2035 or higher than 1.3142 when the trade expires. The price has to be outside when the trade expires.
Now that we know what really a boundary trading strategy is, we need to learn how to make money using this strategy. The most realistic of the four sub types we have discussed above is the ‘Goes Outside’ sub type. This is simply because an asset almost always ends either below the lower boundary or above the upper boundary. Let us consider the following image below:
The black line shows the upper price boundary, the red line shows the lower price boundary, the white space shows the range or tunnel and the blue and purple areas show the areas where prices usually end.
So, the price of EUR/AUD (or just any other asset) will end either in the blue zone or in the purple zone. So, whenever you are using ‘Goes Outside’ variant, there will be very high chances that prices will at least, for once, break through either of the two boundaries.
CAUTION: Range trading is not designed for short term trading like 30, 60 or 120 seconds. It is also not good for 15-minutes trading. Range trading is always good for long term trading.
Bottom Line: Always use Range trading, specifically ‘Goes Outside’ sub type for long term trades. The other three sub types are very risky but can be used for short term trading. However, we don’t really advocate the remaining three sub types.
Tip: By using ‘Goes Outside’ sub type of two-way movement trading strategy, you are basically using an asset’s genetic behavior to your advantage.