Most binary options experts will tell you that riding trends is the best way to trade, and they are right. Trends are where the money is, more so in binary options than in any other trading method. However, being able to spot trend reversals with candlestick charts is also a key part of your success. If you cannot predict reversals with accuracy, you will find that you are trying to ride trends out that no longer exist, and this will lead to losses. Being able to identify trend reversals is an important component of any binary strategy, and when integrated in with a larger overall outlook, can save you a lot of lost money over time.
Applying the Reversal Pattern
The main purpose of this strategy is to be able to exit a trading tack at the right moment. It can really be applied and customized in a number of different ways, but the main point is to show you when you should stop pursuing an already existing strategy.
Technical traders have found a number of tools for making this prediction over the years, ranging from MACD, to Bollinger Bands, to various strength indicators. However, this simple method just uses candlestick charts to make this decision. By looking at the color of candlesticks, and being able to identify both bullish and bearish reversal patterns like the engulfing pattern, you can act instantly on this advice before the experts can accurately look back and say that a new trend started there. This can be done on any timeframe, be it 60 seconds, or 6 hours per trade, as long as you are looking at the right timeframes on your charts. The engulfing pattern is the easiest to identify and is quite accurate.
For example, let’s say that you are able to see that the S&P 500 has an upward trend, and you are watching technical indicators and consumer sentiment to best time your entries to a series of 15 minute trades. But, once you have spotted a trend reversal, you will discover that call options are no longer the best idea. Yes, prices fluctuate and it’s probable that some call options will be profitable, even at the 15 minute interval, but the call option should no longer be your go to choice while the downward trend exists. In a declining market, the put option will prove to be the most profitable default trade while the trend exists. If you hadn’t spotted the trend early on, you might find yourself on the wrong side of things for hours, or even days.
Some Things May Not Go as Planned
Hindsight is 20/20, and that’s true for spotting trends, too. You cannot say that a trend exists or doesn’t exist with perfect certainty unless you are looking back at historical charts. There are some things that you can look at (mentioned above) that can increase your factor of certainty, but they are never going to be 100 percent accurate in the moment. This is the essential trouble with trading, but it is one that we attempt to overcome with in depth and accurate analysis. This strategy aims to attempt that, but will never achieve perfect results regardless of how good the analysis is.
Another drawback to this method is that it is very conservative. You will find yourself backing out of trades based upon a bearish or bullish engulfing pattern, and then the trend reversal might not happen, or it might not happen at that precise moment. Being conservative in your trades can lose you profits, but it will also save you on losses, so long term, this drawback is more neutral than anything.
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