The Touch trade is a measure of both trade direction and range.
The principles used in trading the Call/Put version of the BVS touch binary options strategy are the same but there are some minor modifications that are made to confirm to the Touch trade type.
MetaTrader 4 Indicators: BVS.ex4 (default setting); line tool.
Preferred Time Frame(s): Any
Recommended Trading Sessions: Any time the signal appears on the charts.
Assets Traded: Any
Trade Example (Click the image for full size view)
The BVS.ex4 indicator measures market bias between buyers and sellers.
It uses a color-coding system to identify when buyers are in control and when sellers are dominating the market.
This is the component of the strategy which defines direction.
A trend line is then drawn across the lows or the highs of price action wherever it is possible to do so.
Only two candles are needed to draw this trend line. The Touch trade is then taken as follows:
TOUCH Entry Rules:
Only the Touch component of the Touch/No Touch trade is traded and it can be done as follows:
- Trace the trend lines across two or three candle highs or two candle lows.
- If the candle lows are used, check to ensure that the RVS.ex4 indicator bars are green in color. If the candle highs are used, the RVS.ex4 indicator bars must be red.
- Usually the candles will keep testing the trend lines for some time (the trend line area is marked in blue on the chart). If the strike price set for the trade corresponds to the trend line price up to 30 pips above or below the original point, choose TOUCH.
As we see on the chart above, the original trend line is shown in yellow.
The trend line can be extended further (blue section) to provide a basis for future candles to keep testing the trend line or break it.
If the trend line is strong enough, it will be tested by candles without being broken. Notice that as trend line extends, price at which it is tested keeps getting lower.
Therefore, the start of the blue section of the trend line to the end of the blue section represents the TOUCH strike zone, as the price difference between these two points is about 40 pips.
Therefore it can safely be said that if the strike price is within the 30-pip range defined as mentioned, the logical option to choose in a Touch/No Touch trade is TOUCH.
Trade success is enhanced when the expiry time is elongated. In this case, an M15 chart was used so expiry time should be set to 1 hour or 90 minutes.
About The Trading Indicators
The BVS.ex4 indicator does not function as the main indicator in this strategy but as a confirmation.
However this is an important confirmation because it acts as a pointer to price direction.