Strategies on patterns for binary options: engulfing pattern
Trading on patterns is one of the easiest non-indicator ways to earn on binary options. You see the clean chart of quotations of the financial asset, and the market in all ways shows you the places where you need to enter buy or sell. All you need is to learn to read these intricate signs of the price. It's very easy. After having read this article, you will be able to become a coryphee in decrypting the price patterns.
In order to trade under patterns, your trading terminal has to be capable to display price in candlesticks. If it lacks this function, you can use our service of live charts for binary options or install on the MT4 trading terminal from GrandCapital on your PC, which can be downloaded here.
We will review one of the most effective chart patterns that is currently used in the binary options trading by the market professionals – namely, the engulfing pattern. This pattern is the setup of the Price Action.
This setup tells about the approach of price reversal after a local pullback. That is, if the price was moving in one direction before such pattern, after this pattern has drawn on the chart, the price reverses to the opposite direction in most cases.
How to identify such pattern?
Mandatory part of the pattern is presence of the candles in different directions following each other. At that, the next candle far exceeds the previous candle in size and engulfs it (i.e. the previous candle is completely hidden within the body of the next candle). At the same time, there are 2 types of engulfing: bullish engulfing and bearish engulfing.
So, the engulfing model is identified when:
A clear trend of increasing or decreasing the trend is seen on the market.
The body of the next candle should engulf the body of the previous.
Why such patterns are important for trading?
Because immediately after the formation of the engulfing pattern, the price begins a strong movement in the direction of the engulfing candle.
As you can see, it is very easy. But that's not all, because there is another option of the candle engulfing:
- super-engulfing – an option of the engulfing, where the body of the next candle engulfs the bodies of the previous few. This pattern is even more reliable than the previous one, because it indicates a more intensive upcoming movement.
Thus, in all the embodiments of the engulfing, its enhancer is the trend. If the bearish engulfing pattern occurs on a falling trend, this signal will be considered as the most powerful and vice versa – if there was a bullish engulfing on the growing trend, such engulfing has a great power.
Another strong engulfing signal is the setup in which there first is a bearish engulfing, and immediately after it the bullish appears, and vice versa.
The above example first showed a bearish engulfing on which the price was expected to go down, but the newly formed bullish engulfing essentially moved the price of the instrument up.
That is, all of these supplements can act as confirmation for the trader or a rule to carry out priority security measures (hedging transactions).
Proper use of these models will bring the trader significant results, which sometimes can’t be achieved by other methods of trading.
Enter the position to sell (Put-option) when you saw the forming of a bearish engulfing pattern on the price chart.
Enter the deals to buy in the reverse interpretation. At the same time, it is necessary to enter the market after the pattern is completely formed, that is, after the closing of the candle, which confirmed the pattern.
To trade under the engulfing candlestick pattern, you can use the classic binary options. At the same time, the emergence of this pattern suggests that the trend orientation of the movement present in the market will continue, and this means that we can easily apply ONE-TOUCH options (on touch) and RANGE (on the exit from the price channel) for trading. Moreover, the percentage of payouts on these options is higher than on the usual classic binary options.
Note that we used H1 charts to identify the candlestick patterns, and the screen shows that it takes about 6-8 hours for price of the asset to surely move away from the point of entry into the market with the order. Thus, we select the specified expiration times. If you put the H4 chart to identify the patterns, in this case you need to use the expiration time of at least 23 hours.
The profitability of such an approach is quite high, as candlestick patterns tell the truth in 70% of cases. That is, with the correct identification of engulfing candlestick patterns, of 4 deals you will get 3 profitable and just 1 unprofitable.
The factor also plays into the hands that the options with expiration times from 6 hours yield an average profit of 150%, which further increases the profitability of our approach to option trading.
Do not forget the tenets prescribed by the hard way of many predecessors. We can use only 5% of the amount of your deposit in the deal, otherwise any series of unexpected events will devastate your deposit like the scorching sun does with the small lake.
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