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In/Out Boundary Trade Strategy

The In/Out trade or Boundary trade is a binary options contract in which the trader predicts whether the asset to be traded will stay within a defined range of prices (IN), or trade outside this define price range (OUT) before the trade expires.

Boundary TradingThe Boundary strategy is not as available as the Call/Put contracts on binary options platforms. You will most likely find this option type on the Tech Financials platforms, and on the Tradologic platforms (as the RANGE option). A few proprietary platforms offer this option, and a High Yield variety with a one-week expiry time exists on the Tech Financials broker platforms.

The trade option here is to choose IN or OUT. Therefore, this trade actually aims to detect if an asset’s price action will be in consolidation, or be in a trend.

IN –The key question to ask here is to ask here is: when is an asset found in consolidation? The trend is seen to be sideways usually a few days before a major news item is to be released to the market. Typically, you will see this situation before a major news item like the Non-Farm Payrolls is released. The state of the financial markets will determine what fundamental factors will be deemed important enough by traders, to the extent that they would be willing to wait and see what the market effect would be.

OUT –Definitely the two things that would cause an asset to break out of a trading range is a strong fundamental factor such as a news release of very high impact to the market, as well as the actions of a major institutional market player (such as a central bank) buying or selling a currency in such massive quantities that will cause a major shift in a currency. A trans-continental all-cash acquisition will have the same effect, though this will be delayed when compared with the news release factor.

The Strategy

The question now is this: between the IN option and the OUT option, which will be a better option to trade?

The first step is to look at the expiry time of the contract you are being offered. On the turnkey platforms of Tech Financial Ltd, the regular boundary contract has a range of between 8 to 15 pips for currencies, and about 20 – 30 pips for commodities. The high yield boundary contract has larger ranges. The expiry time for this contract is usually set to between 15 and 30 minutes on both types of contracts. This makes profiting from the Boundary trade on these platforms extremely difficult. You should therefore NEVER trade this option on the turnkey platforms. The very tight ranges and short expiry times make it highly unlikely to profit from the trade on the these platforms.

In contrast, if you use a proprietary platform such as that of NADEX which offers out of the money binary trades with large ranges, or Betonmarkets that actually allows the trader specify the range of prices and expiry times to be used on the platforms, then your chances of profiting from this trade are improved.

“IN” Option Strategy

The IN strategy is used to trade markets in consolidation. If a market is going to be range-bound, then the trader must understand that this can only occur when a major news announcement is on the cards. Therefore the trader should identify the date of the news announcement, and draw trend lines across the price highs and lows about three days to the announcement. Two days to the announcement, the trader should extend the trend lines to make sure that the previously identified support and resistance levels still hold. The trade is then setup, using prices slight below support and above resistance as the price barriers. The trade should be setup to expire about 24 hours to the news event. On the day of the news event, the market would have started to jump out of this range. The IN trader should have been safely out by this time.

“OUT” Option Strategy

You can setup the trade as has been described above for the IN trade, but with two differences. Firstly, prices corresponding to support and resistance should be used, and the trade should be setup to last at least 48 hours post-news announcement. This will give enough room for the breakout created by the news event to hit one of the two price barriers.

The Key

Boundary Trading 2Most IN/OUT trades tend to favour the OUT option because price action hardly stays within a range for long, especially if the currency is one which is known to trend.

The chart below is that of the USDJPY demonstrating the range-bound nature of the price action as from 3 days to the news release, and the strong breakout that followed the release of the news item.

We can see a very strong push that eventually favoured the OUT option. Traders should therefore be more biased towards an OUT option that an IN option, especially when they are trading with the guidelines we have described above.

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