Strategy for binary options trading under “Doji” candlestick pattern
The advantage of trading on the binary options market as compared to other marketplaces is that it’s quite easy to predict the price movement. At Forex you need to accurately calculate profit in points, but here everything is much easier. This is why simple strategies that can draw attention of the trader to a possible reversal trend are used in this market.
Today we will turn our attention to one of such simple strategies based on candlestick analysis. The “Doji” candlestick pattern by itself is not reversal, but rather makes the traders think that the market is currently balanced by the buyers and sellers, and it is unclear who will push the market further. If we draw an analogy with the traffic lights, the “Doji” candlestick refers to the yellow color and urges caution.
This candle looks the following way: small body and long shadows. It shows that the price have been making ??attempts to go up and down over the selected timeframe, but eventually returned to the opening level. The “Doji” candle looks like this on the chart of the upward movement.
This candle may signal about the reversal when the ‘Doji” candle is formed after a fairly strong upward price movement after the bullish candle, which should consist at least from the half of the body with low shadows.
This suggests that consumers are no longer able to raise the price and took a breather. The answer to this question will be the next candle, which will tell us where the market will move on. If the next candle is upward, we miss such a signal, and if the “Doji” is followed by a big black candle, this means that it’s time to enter the market to sell.
The answer to the question of why we sell only at a trend reversal is that such a movement is often very rapid, and hence the chance of making a correct conclusion increases. Therefore, if the next candle breaks through the low of the “Doji” candle, it is a signal for us to enter the market.
The same situation could happen in a declining market. At that, we need to wait for the similar but reversed conditions. Then, we can see the following picture on the chart.
And finally, I would like to say that the H1 chart wasn’t chosen by chance. It is the most convenient chart to search for the “Doji” candles, because you can easily run into the “market noise” on smaller timeframes, and the signals will be inaccurate.
In the charts of higher timeframes, tracking the emergence of such candle is fraught with the purchase or sale of options with long expiration, which will allow to earn only in the long run, keeping the open trade on the market for a few days or weeks. However, the use of such timeframes is quite reasonable for confirming signals.
Points of entry into the option to buy:
To buy, as mentioned earlier, we are looking to meet the following two conditions:
- “Doji” candle formation on a downward movement;
- appearance of the next upward candle that breaks through the level of the “Doji” upper shadow.
Points of entry into the option to sell:
If we are waiting for the signal for the PUT option, we have to wait for the formation of a large black candle following "Doji", aside from the formation of “Doji” candle on an upward trend. Point of entry into the market is the level 2-3 points below the level of the lower shadow of the candle under review.
Binary options that are called classic are considered traditional for this strategy. However, if we consider the nature of this trading strategy, a good profit at the exact trading signals can also be provided by such options as One Touch, No Touch, In Range and Out Range.
Everything is clear with options No Touch and Out Range, and the set levels of “not touching” and “range of missing” must be below the unbroken “Doji” high or low after the signal of a trend reversal was generated. This way of work was already proposed for the other strategies.
But you can work with the One-Touch option even before the formation of the signal, by predicting it. In this case, it is advisable to set a point of tangency at the extreme of the “Doji” candle, which breakthrough you expect.
It is reasonable to work with In Range option, when the signs of reversal have not formed and the trend should continue its movement. In this case, the range of points shall be at a distance of about 100 points in the direction of the dominant trend, starting from the unbroken “Doji” extreme.
Of course, the last two options are more risky, but the potential profit will also be higher.
Expiration times of the options concluded under this strategy, regardless of their type, are the end of the working day, i.e. midnight GMT, at the close of the daily candle. This term was not chosen by chance, because the price fluctuations may be significant during the day, but the price will reveal an emerging trend by the end of trading. If you are trading intraday and analyze minute and five-minute charts, you have the option to invest for a short time, 15-30 minutes.
Despite the fact that such a candle shows up quite often on the chart, it doesn’t always signal about the trend reversal. Therefore, reversal signals do not occur so often. Although they are reasonably accurate (80% at testing), their small number will not allow trading with a large profit.
We can see two ways out of this situation: the active use of In Range option without confirmation of a signal, and the use of this strategy as an additional to the main trading system you use, or as a confirmation or filtering of signals for other strategies.
When trading under the described strategy, it is sufficient to observe the classic money management rules in order to avoid trouble in the form of the loss of a large amount of your deposit. Level of 3% of the maximum risk is the best solution when using this strategy of binary options trading. Also, do not forget that you cannot excessively overload your own deposit with a large number of simultaneously open options.
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