Candlestick charts have been around for hundreds of years, and thanks to this longevity, certain patterns have developed that are more indicative of price movement than others, one of them being the dark cloud cover. Knowing how to quickly identify this helpful pattern will allow you to make quick trades just based upon a glance at a chart. In binary options, specifically the shorter term binary options, you will find that this strategy is a very easy way to make a good number of successful trades as little to no research is necessary. Here, we will go over everything you need to know about using this pattern.
Application of the Dark Cloud
The dark cloud cover pattern consists of two consecutive candlesticks. The first is a positive one, and the second is a negative. The second one has an opening price higher than the positive, but drops quickly in price. This is an indicator that future drops are likely, and suggests that you execute a put option for the term indicated by the candlestick. If you are looking at 60 second candlesticks, then the 60 second put option is the right choice. If you are looking at two minute candlesticks, then the two minute put option is right, and so on.
This is a powerful pattern, and it is very easy to recognize, mostly because it is only two candlesticks, and they are pretty distinct looking. And the direction is always clear, because the dark cloud cover always should be an indicator that a put option is right. Plus, because of the built in timeframes that you are using in your charting software, choosing the correct expiry for your trades is easy, as long as your broker allows those timeframes. If your broker does not have the specific timeframes you are looking for, then you may want to adjust things with your charting package.
Drawbacks Come in All Sizes
The biggest drawback to the dark cloud cover strategy is that not all binary options brokers provide real time candlestick charts. If your broker doesn’t have these, there’s a decent chance that you will not be as successful as you would be if they did provide this. Customization options within a broker supplied chart are also problematic. The other big drawback to this is closely related. Many brokers do provide charts, but their timing may be off. In other words, you will be given a chart, but there’s not a guarantee that it’s in real time, or even accurate. Most brokers have good enough technology to incorporate this into their platform, but not all, so do be careful with what you’re doing, especially on the shortest of expiries, such as the 60 second options.
Also, keep in mind that these methods are based upon observation of charts only. They are not directly connected to the asset, but merely an interpretation of the asset’s movement. This leads to a sort of disconnect, and while that isn’t always a bad thing, it can be problematic in many instances. As a result of this, this method does not have merit in all situations. So, if a particular asset is getting a lot of press, or has just released any sort of financial report, then these is a decent chance that this strategy will be ineffective. Even though this is a quick and easy to use strategy, you still need to be aware of the other factors surrounding the asset that you are trading regardless. If you don’t, then there are too many X factors that come into play, increasing the variance of the trade, and making it far more difficult to be successful with this.
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