A trading range is a lateral pattern exhibiting limited market volatility. The price movement is concentrated within a horizontal channel which is defined by a key support and resistance level. When the price breaks either of these key levels, an acceleration signal is given. To avoid false breakouts, look for a clear breakout beyond the level and enter the position on the throwback.
A long risk reversal option strategy can be used when you are bullish on the market and uncertain about volatility. Its risk/reward is the same as a LONG FUTURES position except that there is a flat period of little to no gain/ loss. Profit increases as prices rise above the long call strike price. Loss increases as prices fall below the short put.
|Trading Symbol||OH H7|
|Trading Symbol||ON H7|
|Trading Symbol||NG H7|
|Contract Expiry||Mar 2017|
The theoretical target of this strategy is an upside movement equal to the height of the trading range. Trading range height: 3.32 - 3.21 = 0.11. The target can be calculated as follow: 3.32 + 0.11 = 3.43.
If the price falls back into the trading range area, the position is closed with a limited loss. Note that the price did pullback into the trading range area in the 3 hours following the upward breakout. To reduce the risk of being deactivated during the throwback, you should accept a corrective move about a third of the trading- range height.
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