We continue a series of articles on how to make money on binary options without a long study of technical and candlestick analysis. To do this, we will look at the price chart for candlestick reversal patterns that indicate the near start of a trend change. One of the strongest is the «Harami» model, and its version with the «Doji» candle is called the «Harami Cross».
If a normal Harami pattern refers to medium strength signals, then the appearance of a cross always requires special attention.
About candlestick analysis
The methodology was developed by the Japanese trade in rice Munehisa Homma in 1755 and has not changed significantly to date. He also found the basic candlestick patterns by which the reversal or continuation of the current price movement is determined.
In terms of technical analysis, candlesticks confirm two basic principles:
- Price (candle) includes all factors affecting it; no additional analysis is required (one of the principles of Dow Theory).
- History repeats itself and with the help of graphical patterns, it is possible to predict the actions of most stock players (Eder’s Chaos Theory, Elliott’s wave model).
The volume of the article will not allow us to describe in detail all the candle patterns; we well only on the simplest and at the same time strong figures. They can be used immediately even in binary option for newbies.
The model is equally strong at the base and at the top of the trend, and its middle name translates as “terrifying”. It is hard to say where such an association came from, but on long timeframes from H4 and higher, it is quite possible to earn up to a hundred points per trade or open several profitable options in a row. Graphically exact binary options strategy it looks as follows:
Professionals can enter the market immediately after closing the candle following the Doji, regardless of its direction. Beginners need to wait until binary option trading signals is fully formed.
Reasons for the appearance
To understand how the market crowd works in our case, let’s look at the daily chart of how bearish Harami appears.
- At the moment, the superiority of forces on the side of the bulls, as evidenced by several long rising candles;
- The binary options guide says that the appearance of the doges means a sudden stop of movement or, as they say, “the market has stumbled on the level”. Simply put, after a long struggle, the days close at the same price or lower than the previous one. The strength of the bulls is almost exhausted, and they can no longer push the market up;
- At the same time, the bears still do not have enough strength to start a long downtrend, as they were forced to buy the current market volume at an increasingly high price. But sometime after the transition of large players to the side of sales, the price will begin to decline, and at least a deep correction can be expected.
In the case of Harami’s bullish situation, the situation developed in the opposite way: the market entered an oversold state and now the word is for buyers. As you can see, everything happens in strict accordance with technical analysis: the phases of distribution (active purchase or sale) and accumulation (consolidation period indicated by the Doge) periodically replace each other.
Examples and recommendations
Harami is a common analysis of candles, and its use in binary options strategy is no different from others. At least two confirmations are required from other technical analysis tools, among which there should be a trend indicator and at least one oscillator. Let’s apply the trending Parabolic SAR and Stochastic Oscillator to the previous picture:
When choosing a strategy, remember that “more is not always better.” The Harami candle itself reflects many factors affecting the price, and it does not need to load it with unnecessary indicators.
Recommendations for use…
- Even if the figure is fully formed if during the previous 10-15 periods Doji is often met, it is better to skip such a signal. This is a sure sign of a speculative or uncertain market, when the main players are waiting, periodically returning market impulses to their original state;
- Like all Japanese candles, Harami is rarely found on the binary trading platform in perfect form, and it is important to develop your own method of working with non-standard models. Thus small timeframes, the first candle close level most often coincides with the next Doji close level.
- If there is a gap between the first candle and the Doji, this is the “Doji Star” figure, which is no less strong, since most likely the market will go to close the heap.
- The Harami model may actually be the beginning of the “Three White Soldiers/Three Falling Candles” pattern, which requires a different strategy. If you are not sure binary options signals, it is better to wait for the third candle – if it has a long body and is directed in the opposite direction from the first, this will be a good sign of a trend change, and not a correction or a pause in movement.
- Check higher timeframes for other candle combinations. It is possible that Harami on the hourly interval may be part of a more global model, such as the Head-Shoulders on a four-hour or daily chart. In this case, it is better to work out a longer model, it will be less risky and more profitable;
- Signs of a weakening signal will be a sharp drop in trading volumes on the Doji, the exit of its shadows beyond the shadow of the first candle.
When the “Harami Cross” appears, always remember that it is inferior in strength to such figures as “Bullish/Bearish engulfing”. Japanese analysts consider them a sign of market unevenness because Doji points to balance of power between buyers and sellers, which sooner or later will end with the victory of one of the parties. When working with free binary options signals, you should always adhere to the basic rule “look for at least one additional confirming factor”, as shown in the figures above.
Look at support/resistance levels, overbought/oversold levels, or Moving Averages intersections. Entering the market only by candle model is extremely risky.