“Bottom-Top” strategy for binary options
Various graphical models appeared on the screen of the trading terminal along with the charts. Over this period, traders have learned to see regularities with the appearance of a variety of graphical models, which are called patterns. Trading under such specific models was later singled out as a separate type of analysis – graphical. Thanks to it, thousands of traders working on a variety of financial markets profit from trading with a variety of assets.
Today we will review the “Bottom-Top” strategy and what benefit can be derived from it when trading on the binary options market. Graphical models that we will analyze are referred to as reversal, which means they signal the trader that the trend cannot move up or down, or it is going to reverse.
A “Double Top” trend reversal pattern is formed when the price is trying to break through the line twice, but fails. This suggests that the market is not ready to buy the asset at this price. So, the trend is left with no choice but to reverse and go in the opposite direction. On the chart, it looks like a mountain with the similar two peaks, hence the name of this graphic pattern.
The exact opposite is the “Double Bottom” pattern. The reasons for its formation on the chart are the same as for the previous pattern, but in relation to the downward trend. This time, the insurmountable boundary for the price is the level of support.
“Triple Top” and “Triple Bottom” are considered as stronger reversal signals. There are two reasons for this. The first is that such reversal patterns occur quite not often, which points to their importance. The second reason for strength of such signal is that they are, in fact, a modification of the “Head and Shoulders” reversal pattern. However, in this situation the shoulder levels are not below the level of the head, but rather next to it. Graphically, these models look like this.
As we can see from the chart, the price initially formed a “Double Top” model and then broke through the level of the local low, giving a false signal. After that, it once again tested the resistance level, formed the third peak and, finally breaking the low, went down.
Point of entry into the option to buy:
We will look for the point of entry into the Call option in a downtrend, when by a number of reasons we will begin to understand that the downward movement begins to lose its strength. Then you need to carefully follow the established low, by the level of which the level of support will be drawn.
If the price again reaches this line and then goes up, the “Double Bottom” structure is nearing completion. Entry into the option is made after breaking through the local high and closing the candle above its level. To filter false alarms, you can open the option only after the closing of the next candle above the local high.
Here you must note that the “Double Bottom” pattern may turn into the “Triple Bottom”, so you need to make a deal only after breaking through the high level and the price fixing above it.
Point of entry into the option to sell:
For the option to sell or Put, you must wait until the exhaustion of the upward movement and the formation of the “Double” or “Triple Top” reversal pattern. We also draw a resistance line along the level of the high achieved and watch when the price approaches it again and bounces off it. We enter the market at the breaking of the local low level and the closing of the candle above it.
You can work with almost all kinds of existing options under the strategy we review today. Despite this, the classic binary options remain the most popular options for work with tops and bottom. Graphic pattern gives fairly accurate signals, and the pulse of breaking through the local low or high brings profit in a relatively short time.
This largely explains the popularity of the classic options in this strategy. However, in our view, No Touch and Out Range options remain undervalued. In the first case, at the breaking through the pattern, the level below support or above resistance shows profitability, which is close to 100%. The same can be attributed to the Out Range option. In this case, the range should start behind the level of resistance or support.
It is advisable to trade intraday on small timeframes under this strategy. At the same time, the timeframe must be multiplied by 4, if you are trading on the closing of the candle. If you wait for the filter in the form of the next candle to confirm this signal, it is advisable to multiply the timeframe by 2 to get the expiration time of the option. This applies to any type of options, whether it's No Touch, Out Range or classic binary option.
The profitability of this strategy, at a sufficiently high accuracy of generated signals (about 87%), is not as big as one would like. The reason for this is that the market rarely gives the trader such patterns of graphical analysis as the “Double top” or “Double bottom”, let alone the triple patterns, as they are even rarer than the “Head and Shoulders” pattern. All this leads to a small number of deals, and accordingly, to the low profit.
Working under the present strategy, please use money management rules, that is, assume no more than 2-3% of the risk. However, in order not to lose potential profit at infrequent signal, you can apply the following financial strategy.
At a pattern breakthrough, you can enter the market with a classic option with the drawdown level of 2%, and after its successful closing, immediately enter into the No Touch or Out Range option under the rules described above, again with the 2% risk. This will help you avoid violating the rules of money management and profit from two deals instead of one.
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