“Diamond” strategy for binary options
Today many trading strategies are based on chart patterns. Therefore, the trader who came to this market seriously and for the long haul needs to know them and be able to use them. Now we'll talk about the pattern that can be seen not so often on the price charts, but, nevertheless, such a pattern is considered to be one of the strongest in the chart analysis.
The pattern is called “Diamond” and is one of the most powerful reversal patterns, along with the “Head and Shoulders” pattern. The “Diamond” is formed on the upward chart at a time when the price gradually updates its highs, but is no longer able to make a new breakthrough upside. The peak is gradually formed, after which the price slowly starts to fall, forming the highs below each other.
If we draw two resistance lines through those highs and parallel or almost parallel lines of support below them, we can find out that such a figure looks like a diamond. In the literature about the markets, this pattern is often called Lozenge. These are names for the same pattern, so do not get confused. The diamond looks in this way on the chart.
The “Diamond” is formed on the downward trend when the power of the “bears” is almost exhausted, but they manage to lower the price lows along the direction of the line of support at an angle downward over some period of time. Once the peak is passed, the lows are getting higher and higher, forming a new support that is already directed upward. The pattern is limited by the resistance lines at the top, which may be parallel to the supports or almost parallel.
Here, just like at the upward movement, such a pattern suggests that the trend will soon change its direction. That is, the task of the trader is to wait for this moment and enter the deal in time. As you've probably guessed, this moment occurs during the breakthrough of the “Diamond” pattern.
It is best to search for the pattern on the H4-H1 charts. This is where they give the most accurate information about a possible trend reversal.
Points of entry into the option to buy:
To consider the option to buy, we need to wait for the formation of the “Diamond” pattern, which is not always easy. Modern researchers say that such a pattern is the rarest and it is quite difficult to meet it on the chart. However, if we see that the low is passed on a downward chart and the price slowly starts to rise, and the resistance and support lines drawn through the highs and lows are close to parallel, you can safely get ready for the Put option.
Traditionally, we make a deal at the closing of a “bullish” candle outside the pattern of a chart analysis. To confirm the signal, you can wait for the closing of the next candle behind the “Diamond”, but in our opinion, this is impractical because such a figure on the chart is quite rare and almost always gives reliable signals.
Points of entry into the option to sell:
We need to wait for the formed “Diamond” pattern on the rising “bullish” trend to sell. After the resistance lines drawn through the extremes of the movement have formed the tip of the diamond, and the support – its lower part, we will need to wait for the closing of the “bearish” candle outside the pattern. This will be the signal for the Put option.
At the breakthrough of the “Diamond” reversal chart pattern, the traders can trade almost any kind of available options offered by their broker, be it an ordinary or classic option, One Touch, No Touch and Out Range options. Although each of these options has its own peculiarities, all of them show good profitability. However, you should remember that you need to set the longer expiration time then. For example, in our case, it took 4 trading days for the price to achieve the targeted level.
If we talk about the expiration times for the options for this strategy, the best would be the end of the working trading day. As the practice shows, this time is quite enough for the price to go far enough to make a profit. The only exception is the One Touch option, which needs more time to achieve the goals. Therefore, it is recommended to set the expiration time at five trading days for it.
Profitability of the strategy is low due to the infrequent occurrence of signals. The pattern is very rarely formed on the charts of the various financial instruments, which makes it impossible to earn under this strategy on a daily or at least weekly basis. But the accuracy of the signals for this strategy is about 93%, which is very high. On this basis, this strategy can and should be used as an additional strategy. It gives too few signals to be the main one.
The accuracy of the signals generated by the strategy allows to fearlessly enter the market with an acceptable risk of 3-5%. If you want to enter the market with a few options, such as classic and Out Range or One Touch, be sure to evenly distribute this amount of risk over all open deals. For example, if you are in the market with three different options, and the level of acceptable risk for you is 3%, the level of risk for each option should be no more than 1%.
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