Enter the market as close as possible to the point of reversal of any trader’s dream and the necessary condition for profitable trading on any asset. Keeping the position as long as possible in the direction of the main trend and reaching the opposite price high/low is a difficult but quite feasible task. The main thing is to use proven trend reversal indicators and exact binary options strategy.
How to search for a trend
The main problem of any trading strategy is not a set of indicators and patterns used, but as always in human psychology. Each trader has his own understanding of when the trend begins/ends and when the reversal actually begins, and not the next correction Remember that any analysis is done on historical data, which means that lag is inevitable.
Let’s consider the trend a directional price movement, which has a statistical value within the working timeframe.
In other words, 2-3 candles in one direction the size of 10-15 points for scalping on the M1-M5 is already a strong trend, for medium-term trading requires strong movement for several hours, and for long-term trends need at least a day timeframe and 10-15 bars. Each reversal indicator has its lag value and the methods of dealing with it in each case are different.
Why takes a swing price
According to market psychology, a reversal of the price movement indicates a change in the balance of power between buyers and sellers – strong fundamental news and statistics can change the trend. If you remove such speculative throws, there will be only a struggle between buyers and sellers, which should find the indicator.
Classical technical analysis shows three stages of market reversal:
- Breakdowns and rollbacks near significant price zones and levels: support/resistance, Fibonacci, historical highs/minimums, channel boundaries, options and futures expiration;
- The price should fix above/below the levels, best after several (at least two) retests;
- The strong movement against the previous trend, after completing the previous two points.
Binary options trader after the first turn signal should estimate the width of the range of probable consolidation until the market balance of power changes. After its completion, you need to open a new one or fix the result of the current transaction.
Reversal to be considered as such must be sufficiently “wide”, not less than 20-30% of the average volatility over the past 7-10 days. Otherwise, such an impulse is likely just a local rollback or correction, which will end quickly.
Any technical indicator can not give 100% guarantee of the reliability of the signal, but the longer and deeper the opposite movement, the greater the probability of a new movement!
We follow market volumes: they should increase as a new movement develops. Market makers should be followed by small and medium-sized traders otherwise the market will quickly return to the fleet or the previous movement will continue. It is better to look at real (non-tick) volumes on currency futures and options.
Purpose of reversal indicators:
- Filter strong corrections and pullbacks;
- Have a minimum delay.
Regardless of the parameters and calculation methods used, the main task of all reversal indicators is to indicate the end of the current trend!
Basic Trend Indicators
The first trending technical analysis tool is considered Moving Average (MA), where the forecast of the future price movement is made based on its position relative to the indicator line: higher for purchases (BUY), lower for sales (SELL), breakdown indicates a possible reversal.
The main problem of binary options strategy with calculating the average value – they show only the strongest trend, while profitable intraday and short-term transactions appear on short impulses on the trend. The second option is to use MA with a large number of periods (“long” Moving Average) for general analysis and “short” for signal filtering.
It is the use of several averages with different periods and offsets that allow to maximally compensate for their delay, for example, in the classic Alligator of Bill Williams, which continues to remain effective on any asset.
The same algorithm in Parabolic SAR (PSAR), but the point of a trend change is the break of the indicator line. Compared to the Moving Average, the indicator gives a lot of false signals on speculative actions of market makers. A filter such a situation changing the settings is very difficult, but visually combined with graphic patterns and oscillators they can be seen. The basic version of Parabolic has such a negative property as redrawing, but there are enough modifications without this drawback!
It should be paid attention to Heiken Ashi – counter-trend candlelight reversal indicators, which is more often used in the stock market, but also the foreign exchange market is quite profitable on higher timeframes and medium-term transactions. It is displayed as a modified candle chart: the market “noise” is well filtered, a trend is visible, candles change colour at pivot points. It is not used on small timeframes due to a significant delay!
For lateral movement periods (flat) when the accuracy of Moving Average signals drops sharply, there are complex tools such as a reversal indicator Ichimoku Kinko Hyo, which allows you to trade on a rebound from the borders of the sideways range and confirm the truth of the breakdown.
Graphic reversal patterns
These are candlestick patterns of the Price Action indicator-free strategy which is the development of classic candlestick patterns, Elliott’s wave theory works well on long-term trends, and also the ZigZag group of technical indicators for weekly and, in some cases, intraday cycles.
Visual analysis of binary options for newbies has always been complicated and the ability to correctly find the candlestick pattern comes with experience and on small timeframes, it practically does not work. But if you follow the dynamics of volume, then it is quite possible to effectively weed out unstable models, and on medium-and long-term transactions, most of the reversal indicators are worked out correctly.
ZigZag is a controlled and correct tool for determining an important fact – a true reversal, short-term rollback, correction or just another speculative impulse. The indicator has a redrawing, but the” completed ” areas give good support/resistance levels and, as practice shows, in the future, the price makes at least one of their retest. The main problem of use – ZigZag settings need to be constantly adjusted to the current volatility, otherwise, the pattern will be very unstable.
Channel and impulse reversal indicators
The probability of a trend reversal increases when the price approaches the boundaries of the channel or its middle. Traditionally, more reliable signals give dynamic channels but do not forget the basic principle of binary trading platform – be sure to confirm the breakout or rollback signal with other instruments. The reserve “course” is determined by the indicators of volatility and market pace (ATR, Momentum) and channel width.
The term “pulse” refers to all kinds of oscillators, primarily overbought/resold. In addition to exiting extreme strong signals for a reversal or continuation of the trend will be discrepancies in the movement of the price chart and the histogram of indicators (divergence), on the breakdown of average levels you can add volume to open trades. Note that any divergences only make sense on timeframes from H1 and above!
No matter which solver is used reversal indicators (CCI, RSI, Stochastic), the standard moments of breakdown of lines or entry into the extreme zone is not 100% guarantee this reversal of the current trend will continue long with the “sticking” of the oscillator in oversold/overbought, and any speculation might quickly end the correction and resume the movement. A pullback to the midline can already be considered a reliable signal, but it is usually just an opportunity to join a new trend.
All MACD modifications or combinations of oscillators with different periods and settings show the best results in determining the trend. Example:
- Stochastic (5,3,3) + Stochastic (21, 9, 3);
- RSI (21) + RSI (120).
If the number of false signals does not decrease, go to the next group of indicators, which are already complex strategies.
Composite reversal indicators
Basic tools have been tested by several generations of traders and it is very difficult to come up with new combinations of parameters. Only non-standard solutions can give a real advantage. Using computer programs and programming languages makes it possible to apply several algorithms at the same time in a trading strategy with minimal loss of analysis quality.
The second advantage is the minimum of constructions on the terminal screen. It often happens that behind the moving averages, Ichimoku, oscillators do not understand where the price really goes. The figure shows an example of a non-standard version of trend determination.
Trend strength assessment should be present in the strategy of any reversal indicator and binary options signals.
- The main problem of finding a trend is in the field of psychology: if you look for a long time on the chart reversals, they begin to see where they are 100% not. Don’t let the market fool itself!
- It is better for beginners to start with trading on trend reversals, rather than on its continuation of it. But, if you decide to still enter it is better to open a new position without changing the volume already opened! So you protect yourself from small pullbacks, it is better to close the more “small” Stop Loss first.
- As experience builds, the trader understands that the true cause of all trend reversals is fundamental events. If you are not a market maker or the Central Bank, it is impossible to predict where the price will go. But for stable trading this is not required – the main point of entry was within 20-30% of the new trend, and there was a normal level of Take Profit (at least 50-70 points). On strong movements use a trailing stop!
- No matter what advertising says, any “author’s reversal indicator” cannot be the only decision-making tool. It is necessary to analyze the situation on several timeframes in order to see the signs of a trend change or a false signal in time. And only after additional confirmation from the indicators working on different principles, you can open a position.
Once again, the results of any analysis are always subjective and depend on the experience of the trader. You need to take into account the style of trading and current goals – if you are a scalper, then 10-15 points will already be a trend for you. And within a day or on medium-term transactions, such movements should not be taken into account, regardless of these indicators and free binary signals. Always look for indicators of trend reversal without redrawing!