Full Review of the Range – Bound Trading Strategy for Binary Options
I always say that it’s best to trade with the trend and join an already established trend, but…there’s more than one way to skin a cat as they say. So why don’t we find a good strategy for ranging markets? Well, the first problem would be how to identify a range – bound area in a timely manner, not in the evening when we look at charts and feel bad for all the missed trades. If we could identify the sideways movement early enough, we could then use some Boundary options and assume that at the expiry time our option is inside the Boundary and thus In the Money. Once again forex-strategies-revealed.com lends us a helping hand and shows us how we can identify range bound price action with the help of the MACD indicator.
How to Use MACD for Identifying Ranging Markets
Although it is not a complete strategy, this can come in handy and we can work from here to adapt it for Binary options trading and a way could be the one I suggested above. Ok, here’s what the originator of the idea is proposing: apply a MACD indicator that plots a histogram on the chart of the asset you are trading and then draw two additional levels to it: one at 0.0005 and one at -0.0005. The settings differ depending on how many decimals your broker is using so you might have to adjust to fewer zeros or more zeros. According to the concept, once price is trading between the two lines, we can consider that we are in a range – bound market. A picture is worth a thousand words so…
Notice that once the MACD histogram enters the space between the two levels, a ranging period begins and price moves almost sideways. Now please don’t imagine that those levels are some form of magical prison that will confine price forever or some sort of vacuum that sucks it in. Just as easy, the histogram could enter the zone and immediately exit it and that’s why it’s best to wait a little to see how price behaves once the histogram is in the zone or use additional indicators that hint us about a possible range – bound market. Read more about the MACD Tool for Binary Options here.
Using the MACD Range for Binary Options
Let’s assume that we correctly identified a range bound market. Ok, what’s next? Well, I guess the next thing to do is buy a Boundary option with the obvious choice being IN. But this depends a lot on what strike prices are offered by our broker for this type of option. There is another way though, but you will need some knowledge about Support and Resistance: draw the support and resistance levels corresponding to the ranging period and buy Calls when price touches support and Puts when price touches resistance. For this to work you will have to trade after the S/R levels can be properly identified (once rejection is seen and S/R levels can be drawn). What do you know, there’s another way of trading this as well: once the histogram clearly exits the ranging zone, trade the breakout, meaning buy a Put if the histogram breaks the -0.0005 level and buy a Call if the histogram breaks the 0.0005 level. This should be accompanied by a corresponding break of the support and resistance level that you have already drawn. If you can find any other ways of trading using this idea, don’t be shy of sharing on the Forum.
Why does the MACD Range Suck?
The MACD histogram will enter the zone between 0.0005 and -0.0005 very often and most of the time it will not remain there. This is true even if price is not trending, just moving strong enough for the histogram to surpass our levels so trader skills cannot be replaced by drawing two lines on a histogram. Also different assets have their own particularities and the suggested levels will not be appropriate for all pairs or all types of asset. In fact the author recommends us to change the levels and adapt them to the pair that we are trading. Again, trader skills come into play.
Why the MACD Range doesn’t suck?
Identifying a range bound market as soon as it begins is difficult even for an experienced trader and although this method is not bullet proof, it can give us a heads up about the possible beginning of the ranging period. Also it allows us to trade in several ways, using Boundary options, normal Calls and Puts and a potential breakout once the histogram leaves the range zone.
Wrapping it up
Even if it’s not a sure thing (nothing is in trading), this method of identifying a market that moves sideways by using the MACD histogram is definitely an extra help and I’ll take almost any free help that I receive. The histogram will move outside the levels many times during a trading session, but once we see it remaining inside the zone for a longer time, we can start to look for other hints that indicate a range bound market. One thing is certain: while the histogram is hovering around the zero level, the volume is low and price is not going anywhere. Overall it’s a good tool to have but don’t expect it to work some magic and fill your accounts.
Learn More about the Range Boundary Strategies for Binary Options on our Forum!