Target Binary Option

The Target Binary Option Explained

Target binaries are a type of binary options bet which we can call a modification of the Call/Put option trade.

The target bet is based on a prediction of the direction that the asset will follow (positive or negative) as well as the extent of the directional move. So target bets are binary options contracts in which the trader aims to profit on the asset ending higher or lower than the strike price by a certain number of pips. The number of pips by which the asset will be positive or negative is called the target range.

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Target binary options can therefore be classified into positive target bets and negative target bets.

–       In the positive target bet, the trader is predicting that the asset will not only end up higher than the trade entry price, but will do so by a certain price level or by a certain number of pips.

–       In the negative target bet, the trader aims to predict that the asset will end up more negative than the trade entry price, and by a certain number of pips.

If we look at the various definitions above for positive and negative target bets, we can see that there is not much of a difference between this trade and the conventional forex market trades.

Trading the target bet will require the following: 

1)    Appropriate selection of a suitable asset on which the target bet will be made. Trending assets will usually perform better than those which are range-bound.

2)    Selection of the trade direction (positive or negative).

3)    Specification of the degree to which the asset will either be more negative or more positive than trade entry price.

Analyzing a Target Bet

Just like we would have it done in forex, the trade must be appropriately analysed before it is made. Unfortunately, the charts available on most binary options platforms are not suitable for analysing the target bet.

A low hanging fruit for this kind of trade is to use a specific software tool that can not only predict the direction of the asset movement, but the extent of the directional movement. One such tool is the Autochartist tool kit which contains the Chart Pattern tool, Channel tool and Fibonacci Tool. These tools analyse charts to detect chart patterns, equidistant price channels and Fibonacci retracement patterns. When the MT4 plug-in version of this tool is used on the MT4 demo account platform, the tools are able to trace the appropriate pattern and also apply a grey shaded area which points out the expected target for the price movement so detected. Our experience with this tool is that on its own, it is not very perfect but can be perfected with some common sense use by the trader.

Another way to perform analysis on an asset is to use conventional technical analysis tools which can pick out price direction, as well as use levels of support/resistance as the possible target areas for the price movements. Since the target binary options trade also requires placement of expiry times, some demo practice is necessary to ensure that expiry times set are in sync with the expected speed of achievement of the target points for the trade.

Example

Look at the chart for the USDJPY below:

targetoption

We use the Autochartist MT4 plug-in to pick a chart pattern. An ascending pattern was detected with a bullish bias. We can also see the grey shaded area on the top right corner of the chart.

This has shown us:

a)    The asset direction (bullish, therefore a positive target bet should be traded).

b)    The extent of the directional move (93.18 – 93.53), about 75 to 100 pips from the entry price.

c)     Since this is a one hour chart, the trader can estimate the expiry from the length of the candlesticks. This is not a perfect move but helps in estimates.

The next step is to head over to the binary options platform and set the target bet as follows:

–       Positive target binary bet: range of 75 – 100 pips.

–       Expiry: approximately 8 hours.

This example easily illustrates what needs to be done in setting target bets. If you are a beginner, this is easily the way to go.

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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