How to Choose the Correct Strike Price Range

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Video Transcription 

Welcome to the fifth lesson of the Day Trading One Touch Option course. On this lesson, you will understand what the range means and how to actually trade one touch options with it.

You need to understand that you will not always be spot-on right on the fully corrective area. Sometimes price will have already moved up, but this doesn’t matter because if we are still inside the range, meaning that we have not hit the target yet. And there are still one touch options open for us to trade, and the strike price price of the option is at a reasonable distance from the actual price, we can actually take the trade.

Now let’s go to the charts so we can better understand this. Okay, so this is the U.S. dollar chart that we were working on and it’s fully worked on and we even have the stochastic oscillator to know that we are actually in a full corrective area right here.

Now that we already have worked on it, let’s thicken it out and let’s make these candles a little bit thicker so we can better see price action. There you go.

Now, what we need to know and what we need to understand is that sometimes we will start up our computers and start working on our charts and notice that a price is actually all the way up here. I mean that we have already missed the actual corrective area. But when trading one touch options, or actually when trading binary options, this doesn’t matter too much.

If we were trading Forex, we could never take the trade all the way up here because when trading Forex you have to be very exact on your entries. When trading binary options too, you have to be very exact, but remember that when trading Forex the actual profit comes from the pips that you can make in the market.

And most importantly, when trading one touch options the profits come from the probability that our option will hit the strike price before it expires. So what we need to understand is this: let’s imagine that we just woke up and the price is here. Let me just change the properties on these horizontal lines so we don’t confuse it with the Fibonacci levels. Okay.

Let’s say the black line is where the price is at and let’s say that we have a strike price at $37.50, which would be around here. Or just above the 127 Fibonacci expansion or extension. And if we were trading Forex again, we could never take the trade right here because, I’m not going to get into it, but the stock price would be so massive that we would be risking too much of our equity.

But when trading binary options, this really doesn’t matter too much. And especially when trading one touch options. Why? Because we already assessed that this is a corrective zone. Okay. And if we already correctly assessed that this is the fully corrective area of this move, we know that we are in the next wave up, okay. So if our strike price is reasonably…in this case it’s, of course, we are in a far away chart, this will not be the case because when trading one touch, you will be analyzing the 15 minute or the one hour charts.

But let’s say that the distance between the actual price and the strike price is 25 pips, okay. And we have an hour left for the option to expire. This means that if we actually take the trade right here, we have one hour for the price to push all the way up here. If it doesn’t, we expire out of the money and if it does, the option closes in the money.

So what we need to do is this: assess this. If we are actually analyzing the 15 minute chart, and the price is here, how many candles have been since we moved from the corrective area? And the answer here will be one, two and three, okay. Because we are in the fourth candle.

And this one, two and three, let’s say it’s a 20 pip distance between the 50 level and the actual price and a 25 pip distance between the actual price and the strike price. So if we have three candles, let’s say four candles because we are in the fourth candle, even though it closes all the way up here. When we open the [inaudible 00:05:43] platform, we are in the fourth candle after the rejection of this corrective area.

This means the price needed four periods of this time frame to go all the way up here. Twenty pips end, we have one hour left. Or let’s say that we have one hour and 50 minutes left to go 25 pips. So we actually can take the price because one, we have momentum to the upside.

Don’t pay attention to these small candles, okay. This is just an example. In fact, this is just an example, okay. Don’t pay attention to these small candles. We have momentum to the upside; price is within the range we have calculated. We have momentum to the upside because the candles are getting bigger and bigger and we are in the middle of the move.

In the middle of the move means that we are in between the corrective zone and the strike price, okay. So we can actually take the trade in this instance. It would be very difficult for you to really spot a start of the move right here. And even if you do so, you’re not trading Forex.

I mean, for instance it’s very, very difficult to trade at these corrections because you have to actually wait in front of your computer until you get a confirmation of rejection. When trading one touch binary options, this doesn’t happen because you only go through your chart. You look for corrective moves and if the corrective move has already started, one, you measure the distance between the actual price and the strike price.

You see if the strike price is between the range, meaning that if it’s above the target that you have calculated you won’t take the trade, you won’t take the one option. And again, this is a great way to diversify your binary options trading because now you can trade the 60 second options, you can trade the normal binary options and you can also trade the one touch options.

Just keep practicing and if you have any questions, just contact us via email. And of course we are going to, on the next and last lesson, we are going to trade someone touches of our own.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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