CandleSticks Trading Strategy
Price action trading is said to have universal application. It can be applied to any market. However, owing to the fluidity, low operating cost, its sheer size and easy access, Binary Options has been one of the hot favorites of the traders and so is the Price action Binary Options trading, especially using CandleSticks Trading Strategy!
I strongly have a suggestion for all traders, both new and experienced. I believe in keeping it simple. This has 2 advantages. Firstly, when the set-up is simple, you can see through all the movements clearly and secondly, it avoids confusion and stress related to trading. In fact, with a simple set up, you’ll be able to focus better on the other, important factors of trading.
Now that you have decided to follow price action, shun all the indicators and set up a crisp, lucid price chart. We will discuss 3 major formations here and see how you can bring home fantastic profits with these.
You may use one or use all 3. However, if you are new to trading, I recommend that you start with a just one type of formation, understand and master it thoroughly before moving on to the next formation. Let me assure you, even if you master just one, you will be reaping consistent profits from it.
The Pin Bar Formation
The pin bar formation identifies price reversals with its 3 bars. Once you master this formation, you will be able to identify profitable trading opportunities from the naked price chart. Let’s check out more on the pin bar formation and how you can use it to your advantage in Binary Options trading:
Understanding a Pin Bar
The pin bar is the middle bar found in the 3 bar formation in any naked
Features of the Pin Bar formation
The main characteristic of the pin bar formation is that the open and the close of the bar lie within the first and the third bar or are situated quite close to it.
Secondly, the pin bar is close knit, with open and the close pin bar situated quite close to each other. The better the proximity, the stronger the signal
Again, the open and close of the pin bar are within close proximity of the bar end. The closeness to the bar indicates stronger signal.
The pin bar tail appears from the adjacent bars and is quite long. The length of the pin bar tail indicates the strength.
Identifying the Bearish Reversals
In a bearish reversal formation, you will see a long tailed pin bar jutting out between the bar 1 and 3. Bearish reversal pin bar formation is also called as the top reversal formation.
Identifying the Bullish Reversals
Also known as the bottom reversal formation, the bullish reversal pin bar formation is exactly opposite to that of the bearish reversal pin bar formation. You will see a long tailed pin bar jutting out from between the bars 1 and 3.
Trading with a Pin Bar Formation
Before you begin trading with the pin bar formation, it should be remembered that not all pin bar formations can be traded for profit. Unless the pin bar formations meet the conditions specified in the features above, it won’t lead to profits.
Another way to reduce risk is to trade only on those pin bars which are confirmed by another independent signal. This is to safeguard your capital. Pin bars occurring with the prevailing trend are certainly bound to generate better profits. Once your eyes are trained to watch out for profitable pin bars, you will be able to spot them easily even in a sideways moving market or when the price reaches new highs and lows.
You can use the pin bar along with moving averages, support and resistance levels, Elliot wave, Fibonacci retracements, trend lines etc.
Trading the bearish pin bar
When a bearish pin bar formation is spotted, we sell when the lower pin bar breaks. The stop loss is placed one pip over the pin bar tail.
Trading the bullish pin bar
When a bullish pin bar is formed, we enter the buy trade when the high pin bar breaks. The stop loss is placed at 1 pip lower than the low pin bar tail.
The daily chart CAD/JPY formation depicts fine, profitable pin bar formations.
The pin bar formation is a fantastic trading tool. When you see a pin bar formation along with other indicators such as the support and the resistance levels, the moving average or the prevailing trend, you can rest assure that these formation would yield accurate, profitable results.
It is important that the underlying pin formation meet the criteria listed above so as to profit from it. If you are not confident about any pin bar formation, it is better to ignore it.
Remember – the higher time-frame you use, the more accurate signal you get.
Trading The Inside Bar
Inside bar is a high probability winning strategy and as such can be termed as low risk trading strategy. Unlike the other setups, with the inside bar, the stop losses are generally small and therefore, the risk is quite low when trading with this set up.
Inside bar is one of the best tools when you are trading in a dominantly trending market. Over the years, I have reaped massive profits while trading the inside bar on daily chart in trending market.
Understanding the inside bar
An insider bar is a single or multiple bars that are housed within the primary bar, as can be seen in the above fig. If you observe, the insider bar has higher low as well as lower high as compared to the immediately preceding bar. The insider bar daily chart resembles a triangle.
What does an insider bar indicate?
I’d call the insider bar a bright torch that indicates if the trend would continue or if a reversal is in the offing. Like a powerful torch, it sheds light on market consolidation or if the market is still in the indecisive mode. You
will spot these bars particularly as the market corrects itself after a massive
leap in a particular direction or when it reaches the benchmark support or
I have a particular liking for these trading set up because these indicate low
risk high probability entry and exit points.
In the above chart, we can see the insider bar suggesting continuation of the upward trend in the market, and then also a reversal. If you are new to Binary Options trading, I’d suggest you trade when the insider bar suggest continuation in trend. Gradually, when you have understood these signals well and have found some grip of the market, you can use the same signals to identify reversals in the market.
When do the Insider Bar general most profits?
Inside bar is known to bring most profits in a trending market and take a short break before it begins to retrace.
When the market retraces, we place our stop at a point lower than the middle of the primary candle, or if you are a cautious trader, just below the primary candle. Now, when the market retraces to 3 bars, you’ll hit the stop.
This is a USD/JPY chart and we can clearly see the insider bar setups. Both the insider bars were followed by a massive trend and gave profitable opportunity at extremely low risk.
Let us see what exactly do the insider bars speak of from the price action view point and why not all insider bars would translate into trading opportunity.
Insider bars generally indicate that the market has lost momentum. Several reasons could be attributed to why the demand or the supply lost its steam, primary of these are:
- Just before an economic announcement, people stay away from the market and you see less of activity in the market
- The price has reached a major support or resistance level
- Traders are taking profits
- There is price consolidating following massive leap or corrective price action
Now, except for the economic announcement, where the markets cannot be predicted with the bars, insider bar would generally result in good, profitable trading. But, when there is price consolidation following massive leap or price correction, the insider bar could also mean a short break before the market continues to trend. This would be an example of continuation insider bar set up.
The market would also take a pause when the traders are taking profit. In such cases, the trend may continue after the pause.
When the price nears major resistance or support level, the insider bar would signal as to how powerful the retracements or counter trend would be.
Since insider bars appear almost 10% of the times, mastering them well could earn you great profits.
Insider bars could fetch most profits when the market takes a pause after dominant trending. Not all insider bars could lead to trading opportunities. One must master trading on higher time frames with the inside bar, before moving on to the lower time frames.
Two bars matching lows/highs with second bar making a higher/lower close
This is another interesting price set up to get an insight into reversal early on. This is one of my favorite strategies as this set up helps me lap up massive profits way ahead of most traders.
Two low bars matching with the second bar making a higher close- When you spot two matching low bars, and when the second bar has a higher close, it indicates an uptrend.
Similarly, when you see two matching high bars with the second bar closing on a lower close, it indicates beginning of a reversal.
How to trade with two bars matching lows/highs with second bar making a higher/lower close:
- When the price action breaks two lows/highs of the last 2 candles, you are witnessing the first breakout.
- If the two bars matching lows/highs are also the resistance and support levels
Your entry point should be when the bar breaks into a higher/lower close. Place your stop loss at the opposite bar end.
Wait for a confirmation from Fibonacci Retracement or moving averages before you make a trade.
CandleSticks Binary Options Trading Sumary
Candlesticks trading is part of Price Action strategy that we are highly recommended because, the most important of all, it makes sense. The previous candles tells us a story about the upcoming candles, therefore the saying “The futures are already written in the past” that we hear so often in Binary Options or general trading world.