The appearance on the price chart of reversal figures (patterns) of candlestick analysis is one of the best binary options signal to open a transaction. The trend is not only confirmed but also is at the very beginning, which makes it possible to keep the deal for a long time not only on older but also on smaller timeframes. Let’s look at one of the most reliable reversal patterns – “Three soldiers“.
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 newbie’s.
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:
When trading with free binary options signals, remember: if at least one of the three candles is of a different color, the figure is considered incomplete, and we are waiting for the next signal!
The picture classic models in which the Open price is higher below the Close (Close) for an upward pattern, and lower for a downtrend. Such successive breaks or “gaps” are typical for the stock and commodity markets. In the Forex currency market, most of the time, the opening/closing levels are the same:
Example of Forex currency pairs:
To open a trade, the following conditions must be met:
- All patterns show only the beginning of a trend change and, despite the positive usage statistics, cannot be the final confirmation of the continuation of a new trend. Use for this additional technical indicator or paid binaries options trading signal, such as vfxAlert;
- Pattern formation should be preceded by a strong trend or a long period of consolidation;
- If the opening and closing prices are different, the closer to the middle of the previous candle opened “soldier” or “crow” the stronger the signal;
- The second and third candle necessarily must be roughly are identical on the magnitude, as on the body, so and on shadows. Otherwise, it is better to skip signal;
- When moving to the next higher timeframe, all three candlesticks merge into one ascending or descending.
- Expiration time is determined according to the timeframe used, it is recommended to choose values within 5-7 bars for timeframes up to M30, and 10-15 from H1 and above;
- If you count the expiration, see how many candles on average until the last local max/min. Remember that we open a trade on a trend that can last long enough. It will not be very good if it closes at the beginning because of the “short” expiration.
Exact binary options strategy with pattern and technical indicators
As an additional confirmation of the signals from three candles, we use:
- Indicators of volumes, including tick ones. Both figures are widely used in the VSA (volume spread analysis) technique. A sharp increase in volumes simultaneously with the appearance of candles indicates a strong interest in the market to change the current trend;
- Trend indicators and oscillators of overbought/oversold. The best option for beginners is to set the moving averages on the chart, for example, with a period of 200 and 120, and the MACD or Stochastic oscillator and you get a reliable trend strategy, both on technical and candlelight analysis;
- Change in volatility. Here, the Bollinger band is out of competition – we enter the market at the intersection of the midline or the breakdown of borders after a period of consolidation.
Recommendations about use…
- The body of the candle. If there are long bodies even in one candle figure, be extremely careful – in most cases, this means that the price has risen or fallen sharply due to the speculative actions of major players, and there has been no real change in the balance of power between buyers and sellers.
- Small candles with long shadows. If both shadows of the second and especially the third candlestick are equal or much longer than the body (reminiscent of “Doji” or “star”), it is recommended to wait for the next signal.
Buyers/sellers do not yet have sufficient forces to change the trend, and in the candlestick analysis, such situations are interpreted as follows: the pattern turns into a “Repulsed attack” if the second candle has the same appearance or a “Slowdown “(“Braking”) only for the third candle:
- No shadows. Do not wait for candles in the pattern with a complete lack of shadows. Such ideal trend confirmation signals are very rare and you can miss many good entry points.
When studying why binary options signals work, remember that the perception of candlestick analysis will always be subjective. If one trader does not see the pattern, another may find a good entry point.