Double Touch Option

1. Double Touch Option: A Comprehensive Guide for Beginners

The Double Touch option is a popular and potentially profitable binary option type offered by many brokers, including IQ Option and Pocket Option. It differs from standard High/Low options in its unique payout structure and the conditions required for profitability. This article provides a detailed explanation of Double Touch options, covering their mechanics, strategies, risk management, and how to interpret market conditions for successful trading. This guide is geared towards beginners, assuming little to no prior experience with options trading.

1. 1. What is a Double Touch Option?

A Double Touch option is a binary option that requires the price of the underlying asset to *touch* a predefined upper and lower barrier (or target) *at least once* before the option’s expiration time. Unlike a standard High/Low option where the price needs to be above or below a certain level *at expiration*, a Double Touch option only requires the price to touch the barriers *during* the option’s lifetime.

Here's a breakdown of the key components:

• **Underlying Asset:** This is the asset you are trading (e.g., currency pair like EUR/USD, stocks, commodities, indices).
• **Strike Price:** The current market price of the underlying asset when you purchase the option. The barriers are set relative to this strike price.
• **Upper Barrier:** A price level *above* the strike price.
• **Lower Barrier:** A price level *below* the strike price.
• **Expiration Time:** The time limit within which the price must touch both barriers.
• **Payout Percentage:** The percentage of your investment you receive if the option is successful. Payouts for Double Touch options are typically higher than standard High/Low options, reflecting the increased difficulty of the condition being met. Payouts can range from 70% to 95%, depending on the broker and the duration of the option.
• **Investment Amount:** The amount of capital you risk on the trade.

• • How it Works:**

When you purchase a Double Touch option, you are essentially betting that the price of the asset will fluctuate enough to touch both the upper and lower barriers before the expiration time. If the price touches both barriers, regardless of *when* during the option's lifetime, you receive the payout. If the price fails to touch either or both barriers before expiration, you lose your investment.

1. 1. Understanding the Mechanics with an Example

Let’s say you want to trade a Double Touch option on EUR/USD.

• **Underlying Asset:** EUR/USD
• **Current Price (Strike Price):** 1.1000
• **Upper Barrier:** 1.1050 (50 pips above the strike price)
• **Lower Barrier:** 1.0950 (50 pips below the strike price)
• **Expiration Time:** 15 minutes
• **Payout:** 80%
• **Investment:** $100

For this trade to be profitable, the price of EUR/USD must touch both 1.1050 and 1.0950 *at least once* within the next 15 minutes. It doesn't matter if it touches them in either order, or multiple times. If it does, you receive $80 in profit (80% of your $100 investment), plus your original $100 investment back, for a total of $180.

If, however, the price stays between 1.0950 and 1.1050 throughout the 15 minutes, or only touches one of the barriers, you lose your $100 investment.

1. 1. Strategies for Trading Double Touch Options

Successful Double Touch trading requires a combination of technical analysis, understanding market volatility, and employing appropriate strategies. Here are some popular approaches:

1. 1. 1. 1. Volatility-Based Strategy

Double Touch options thrive in volatile markets. Higher volatility increases the likelihood of the price touching both barriers.

• **Identifying Volatility:** Use indicators like Bollinger Bands, Average True Range (ATR), and Standard Deviation to gauge market volatility. Widening Bollinger Bands or a high ATR reading suggest increased volatility. See also Chaikin Volatility.
• **Trade Selection:** Look for assets that are exhibiting increased volatility, perhaps due to major economic news releases (see Economic Calendar) or significant price movements.
• **Barrier Placement:** Consider wider barriers for more volatile assets and narrower barriers for less volatile ones.

1. 1. 1. 2. Breakout Strategy

This strategy capitalizes on the expectation of a price breakout from a consolidation range.

• **Identifying Consolidation:** Look for periods where the price is trading sideways within a defined range. Support and Resistance levels are crucial here.
• **Anticipating Breakout:** Use indicators like MACD or RSI to identify potential breakout signals. A MACD crossover or an RSI divergence can suggest a breakout is imminent.
• **Barrier Placement:** Set the upper and lower barriers slightly above and below the consolidation range, anticipating the price will move strongly in one direction.

1. 1. 1. 3. News Trading Strategy

Major economic news releases often cause significant price fluctuations.

• **Monitoring News Events:** Stay informed about upcoming economic news releases (e.g., interest rate decisions, GDP reports, employment data). See Forex Factory for a comprehensive calendar.
• **Anticipating Price Reaction:** Understand how different news events typically affect the underlying asset.
• **Barrier Placement:** Set the barriers based on the expected price movement following the news release. Wider barriers may be necessary for high-impact news events. Consider using Pivot Points for barrier placement.

1. 1. 1. 4. Trend Following Strategy

Even in a trending market, there can be pullbacks and retracements that allow the price to touch both barriers.

• **Identifying Trends:** Use indicators like Moving Averages and Trendlines to identify the prevailing trend. Also consider Ichimoku Cloud.
• **Trading with the Trend:** Look for opportunities to trade Double Touch options in the direction of the trend, anticipating temporary pullbacks.
• **Barrier Placement:** Set the barriers around recent swing highs and lows, anticipating the price will retrace before continuing in the trend direction.

1. 1. Risk Management for Double Touch Options

While Double Touch options offer higher payouts, they also carry a higher level of risk. Effective risk management is crucial for long-term success.

• **Position Sizing:** Never risk more than 1-2% of your trading capital on a single trade. This helps to protect your account from significant losses.
• **Expiration Time:** Choose an expiration time that is appropriate for the asset and the market conditions. Shorter expiration times offer quicker results but are more susceptible to noise. Longer expiration times provide more time for the price to touch the barriers but increase the risk of unexpected events.
• **Barrier Distance:** Consider the distance between the barriers. Wider barriers increase the probability of success but reduce the payout. Narrower barriers offer higher payouts but are more difficult to achieve.
• **Avoid Overtrading:** Don’t force trades. Wait for high-probability setups that align with your trading strategy.
• **Use Stop-Loss Orders (Where Available):** Some brokers offer the ability to partially close a Double Touch option. Utilize this feature to limit potential losses.
• **Understand Correlation:** If trading multiple assets, be aware of correlations. Events affecting one asset may impact others. See Correlation in Forex.
• **Demo Account Practice:** Before trading with real money, practice your strategies on a Demo Account to familiarize yourself with the platform and the nuances of Double Touch options.

1. 1. Interpreting Market Conditions

Successfully trading Double Touch options requires a keen understanding of market conditions:

• **Trending Markets:** In strong trending markets, the price may rarely touch the lower barrier if you're trading a Call Double Touch, or the upper barrier if trading a Put Double Touch. Be cautious in these scenarios.
• **Consolidating Markets:** These markets offer the best opportunities for Double Touch options as the price is likely to fluctuate within a defined range, increasing the probability of touching both barriers.
• **Volatile Markets:** High volatility is your friend. Look for assets experiencing significant price swings.
• **Low Volatility Markets:** Avoid trading Double Touch options in low-volatility markets as the price is unlikely to move enough to touch both barriers.
• **Economic News Releases:** Be prepared for increased volatility around major economic news releases.

1. 1. Advanced Considerations

• **Implied Volatility:** Understanding Implied Volatility can help you assess the potential price movement of the underlying asset. High implied volatility suggests a higher probability of the price touching the barriers.
• **Time Decay:** Like all options, Double Touch options are subject to time decay. The value of the option decreases as the expiration time approaches.
• **Broker-Specific Features:** Different brokers may offer different features and tools for trading Double Touch options. Familiarize yourself with the specific features offered by your broker.
• **Fibonacci Retracements:** Use Fibonacci Retracements to identify potential areas where the price might retrace and touch the barriers.
• **Elliott Wave Theory:** Consider applying Elliott Wave Theory to predict potential price movements and identify opportunities for Double Touch trades.

1. 1. Resources for Further Learning

• **Investopedia:** [1](https://www.investopedia.com/)
• **Babypips:** [2](https://www.babypips.com/)
• **TradingView:** [3](https://www.tradingview.com/)
• **DailyFX:** [4](https://www.dailyfx.com/)
• **FXStreet:** [5](https://www.fxstreet.com/)
• **Forex Factory:** [6](https://www.forexfactory.com/) (Economic Calendar)
• **IQ Option Education:** [7](https://www.iqoption.com/en/education)
• **Pocket Option Education:** [8](https://pocketoption.com/education)

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