Touch/No Touch Trading

Touch/No Touch Trading: A Beginner's Guide

Touch/No Touch trading, also known as One-Touch or Binary Touch options, is a type of financial trading that offers a high-payout potential based on a simple premise: will the price of an asset *touch* a predetermined price level within a specified timeframe, or *not* touch it? This article provides a comprehensive beginner's guide to understanding and potentially utilizing this trading style, covering its mechanics, strategies, risk management, and considerations for a successful approach.

What is Touch/No Touch Trading?

Unlike traditional binary options where the price only needs to be above or below a strike price at expiry, Touch/No Touch options require the price to either reach (Touch) or not reach (No Touch) a specified barrier *at any point* during the option's duration. This fundamental difference significantly alters the dynamics and risk profile compared to standard High/Low options.

Touch Option: The trader profits if the price of the underlying asset touches or exceeds the target price (the 'barrier') at least once before the expiry time. It doesn't matter if the price is already above the barrier when the trade is opened; only that it touches it *during* the option’s lifetime.
No Touch Option: The trader profits if the price of the underlying asset *does not* touch or exceed the target price (the 'barrier') before the expiry time. Even a momentary touch of the barrier results in a loss.

These options are typically offered on a wide range of assets, including Forex currency pairs, indices (like the S&P 500 or Nasdaq 100), commodities (like Gold or Crude Oil), and even cryptocurrencies like Bitcoin. The payout structure is fixed, meaning the potential profit and loss are known upfront. Payouts can range from 70% to 95% for a Touch option and typically around 70-85% for a No Touch option, varying depending on the broker and the asset.

How Does it Work?

Let's illustrate with an example:

Imagine you believe the price of EUR/USD will likely rise, but you anticipate some volatility. You observe the current price is 1.1000. A broker offers a Touch option with a barrier at 1.1100 and an expiry time of 1 hour, with an 80% payout.

**If the price of EUR/USD reaches 1.1100 or higher at any point within that hour**, your trade is successful, and you receive an 80% profit on your investment.
**If the price of EUR/USD *never* reaches 1.1100 within that hour**, your trade fails, and you lose your initial investment.

Conversely, if you believe the price will *not* reach 1.1100, you could purchase a No Touch option with the same barrier and expiry.

The key difference from standard binary options lies in the time component. The price doesn't need to be *at* the barrier at expiry; it simply needs to *touch* it during the option's duration for a Touch option to be profitable.

Strategies for Touch/No Touch Trading

Several strategies can be employed when trading Touch/No Touch options. It's crucial to remember that no strategy guarantees profit, and risk management is paramount.

1. Volatility-Based Strategy: Touch options are particularly suited for periods of high volatility. If you anticipate a significant price swing, a Touch option can capitalize on that movement. Tools like the Average True Range (ATR) indicator can help assess volatility levels. [1]

2. Breakout Trading: If an asset is consolidating within a range, and you identify a potential breakout, a Touch option can be used to profit from the price exceeding the consolidation boundaries. Using Support and Resistance levels is crucial for identifying these potential breakouts. [2]

3. Trend Following: In a strong trending market, a Touch option can be used to profit from the continuation of the trend. Identifying the trend using Moving Averages (e.g., the 50-day and 200-day moving averages) can improve the probability of success. [3]

4. Range Trading (for No Touch): When an asset is trading within a well-defined range, a No Touch option can be used if you believe the price will stay within those boundaries. Using Bollinger Bands can help identify these ranges. [4]

5. News Trading: Major economic news releases (e.g., Non-Farm Payrolls (NFP)) can cause significant price movements. A Touch option can be used to capitalize on the anticipated volatility following a news event, but this is a high-risk strategy. [5]

6. Fibonacci Retracement and Extension: Utilizing Fibonacci retracements and extensions to identify potential price targets can be beneficial when setting barriers for Touch options. [6]

7. Elliott Wave Theory: Applying Elliott Wave Theory to predict potential price movements and identify likely touch points for Touch options. [7]

8. Candlestick Pattern Recognition: Identifying bullish or bearish candlestick patterns (e.g., engulfing patterns, doji) can provide clues about potential price movements and help inform your Touch/No Touch trading decisions. [8]

9. Using the RSI (Relative Strength Index): Overbought or oversold conditions indicated by the RSI can suggest potential reversals, useful for No Touch options. [9]

10. MACD (Moving Average Convergence Divergence) Strategy: Crossovers and divergences in the MACD can signal potential trend changes, informing Touch or No Touch trades. [10]

Risk Management in Touch/No Touch Trading

Touch/No Touch options are inherently risky. Proper risk management is crucial to protect your capital.

Small Investment Size: Never invest more than a small percentage of your trading capital in a single trade (typically 1-5%).
Short Expiry Times: While tempting due to the quick results, shorter expiry times increase the risk of premature option failure. Consider expiry times that align with your trading strategy and analysis.
Understand Volatility: Be aware of the volatility of the underlying asset. Higher volatility generally favors Touch options, while lower volatility may be more suitable for No Touch options. Utilize the VIX (Volatility Index) to gauge market volatility. [11]
Avoid Overtrading: Don't feel compelled to trade every opportunity. Wait for setups that align with your strategy and risk tolerance.
Use Stop-Loss Orders (where available): Some brokers offer the ability to partially close a trade, effectively acting as a stop-loss.
Diversification: Don't put all your eggs in one basket. Diversify your trading across different assets and strategies.
Account for Spread and Commissions: Factor in any costs associated with trading, such as the spread or commission charged by the broker.
Psychological Discipline: Avoid emotional trading. Stick to your trading plan and don't chase losses.

Choosing a Broker

Selecting a reputable and regulated broker is essential. Look for brokers that:

Are Regulated: Ensure the broker is regulated by a reputable financial authority (e.g., CySEC, FCA, ASIC).
Offer Competitive Payouts: Compare payouts across different brokers.
Provide a User-Friendly Platform: The trading platform should be easy to navigate and use.
Offer Educational Resources: Good brokers provide educational materials to help traders learn.
Have Responsive Customer Support: Ensure the broker offers reliable customer support.

Advanced Concepts

Implied Volatility: Understanding implied volatility can help assess the likelihood of the price touching the barrier. High implied volatility suggests a higher probability of a touch. [12]
Delta Hedging: A more advanced technique used to manage the risk associated with Touch/No Touch options.
Barrier Options: Touch/No Touch options are a type of barrier option. Understanding the broader category of barrier options can provide a deeper understanding of the mechanics. [13]
Gamma and Vega: These are Greeks that measure the sensitivity of an option’s price to changes in the underlying asset’s price and volatility, respectively. Understanding them is crucial for advanced risk management. [14] and [15]
Time Decay (Theta): Like all options, Touch/No Touch options are subject to time decay. The value of the option decreases as it approaches its expiry time. Understanding Theta is vital. [16]

Tax Implications

The tax implications of trading Touch/No Touch options vary depending on your jurisdiction. Consult with a tax professional to understand your tax obligations.

Resources for Further Learning

Babypips: [17] - A comprehensive online resource for Forex and trading education.
Investopedia: [18] - A valuable source of financial definitions and articles.
TradingView: [19] - A charting platform with a wide range of technical indicators.
DailyFX: [20] - Provides Forex news, analysis, and education.
Forex Factory: [21] – A forum and calendar for Forex traders.

Conclusion

Touch/No Touch trading can be a potentially profitable but also risky endeavor. Success requires a thorough understanding of the mechanics, a well-defined trading strategy, and diligent risk management. Beginners should start with small investments and practice on a demo account before risking real capital. Continuous learning and adaptation are essential for navigating the dynamic world of financial markets. Remember to always trade responsibly and within your means. Binary Options also provide a good base of understanding. Technical Analysis is crucial for successful trading. Fundamental Analysis can also be useful in identifying potential trading opportunities. Risk Management should always be your top priority. Trading Psychology is also important for making rational trading decisions. Forex Trading is a common application of these strategies.

Start Trading Now

Sign up at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to receive: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners