Trade binary options using engulfing candlestick strategies

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Classic Japanese candlestick trading strategies

The technical format for quote building in the form of Japanese candlesticks operating on the financial market is the most convenient and effective in terms of successful forecasting. The popularity of Japanese candlesticks is due to their broad capabilities in regards to building workable and universal trading strategies. This means that strategies based on building patterns of this type of quote chart have found wide application in futures trading. Today, we will look at some simple forecasting techniques based on patterns that are formed when building these types of quotes.

Japanese candlestick strategy

To use the forecasting mode based on candlestick patterns, we will require certain technical capabilities of the trading terminal for working with options trades, as well as specific trading conditions that will maximize the market participant’s opportunities on the issue of risk management. We can recommend the trading terminal our our top rated companies as the most optimal in terms of the main parameters of effective trading. Traders are offered the following set of services, trading conditions, and technical tools:

• A chart with functionality for using Japanese candlesticks

• A set of assets from 80 positions

• Trades with yields of up to 90%

• Options with expirations in the range of 1 minute to 24 hours

• A variable time frame for the trading chart

• Trading conditions with these parameters – trades from $1, the minimum investment in trading is $10

With these conditions it is possible to effectively apply any professional system of market forecasting for futures contracts.

So, let’s consider the two most effective and successful Japanese candlestick patterns for options trading — the engulfing model in the form of quote reversal and the continuation of the trend.

Candlestick trading strategy

The engulfing model on technical quotes in the form of Japanese candlesticks has the following format: when trend movement is building upwards on the quote chart, a market situation is formed in which the growing quote candlestick is completely engulfed by the body of the following price candlestick directed downwards:

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An important point: when identifying the engulfing model, only the size of the body of the price candlestick should be taken into account, this does not include any shadows or tails. This pattern will allow you to accurately determine breaks in trends, which is effective for working with this type of contract.

This signal format for registering trades on the options market is used in two modes – as a signal for registering a trade when the trend reverses or as a signal for the end of short-term correction of the price and trading in the direction of the main trend. The first format does not cause complications – just use the moment you identify the pattern to open your trading positions. Let’s discuss in more detail the engulfing model which signals the continuation of trend movement.

Japanese candlestick trading strategy – the engulfing model — continuation of the trend

For this format of using the model, it’s all a bit more complicated, but no less effective for options trading. In order to trade, you first need to identify the trend. Then you wait for the price to roll back in the opposite direction to the trend movement and you look for the formation of the candlestick model – this moment indicates the completion of correction and serves as a signal to register your trade:

The signals for working with contracts DOWN use the format of the candlestick model with the reverse construction:

Thus, the technical chart independently generates high-precision trading signals with an efficiency level of at least 85%. This figure means you can achieve an average of 250% in capital gains per trading week.

Money management for the “Japanese candlestick” strategy

This mode of market forecasting is characterized by a high level of cyclicity of trading signals, which means it is also accompanied by a high level of risks. To avoid large volumes of trading losses, it is recommended that you follow the simple limitations in the classic rules of money management:

• When trading with the minimum level of investment, we use trades of the initial cost parameters

• When trading with large volumes of investments, we use trades with costs limited to the level of 5% of the amount of trading capital

Thus, the simple, highly cyclical pattern of Japanese candlestick building makes it possible for you to quickly and safely increase your operating capital funds.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Candlestick Strategies for Binary Options

Using Candlesticks to Create Binary Options Strategies

Although the theory of candlesticks was conceived by a Japanese rice investor called Sokyu Honma over 300 years ago, it is still regarded as so helpful and highly applicable to modern trading that numerous binary options strategies have been derived by using its principles (you can learn more about candlesticks in our technical analysis education section here).

Fascination with candlesticks has elevated recently because many of its concepts combine very well with present-day advanced technology. Many prosperous investors have discovered that obtaining a good comprehension of candlestick theory has allowed them to increase their profits and success substantially. This is basically because this technique offers valuable insights into trading the financial markets.

Each candlestick provides a visual presentation about how price performed during a chosen time frame. This feature implies that if investors can understand these structures proficiently then they can attain a good comprehension of the prevailing trading conditions. A candlestick possesses 4 primary components, i.e. its opening, closing, lowest and highest prices. The gap between the closing and opening prices of a candlestick is labeled the ‘real body’. When the closing price is higher than the opening one, then the body color is white and the candlestick is classified as bullish.

The length between the highest and closing values of a candlestick is referred to as its wick. The gap between the lowest and opening prices is known as the tail. A sample bullish candlestick is revealed in the next diagram.

Whenever the body of a candlestick is black then it has been created by a bearish downward movement with its closing price beneath its opening value. The ensuing chart illustrates a bearish candlestick.

A candlestick can exhibit numerous formations with each one possessing a unique interpretation. A series of famous patterns are now presented.

A candlestick is generated, as defined above, for each time-frame. For instance, if you have chosen the 1 hour time period, then every candlestick will present the price action that occurred during each successive hourly period. A chart can consequently exhibit a large number of candlesticks, as illustrated by the following figure:

Many prosperous investors utilize candlesticks because they offer the next advantages:

  1. Numerous candlestick formations have been defined and have been comprehensively analyzed over extensive time periods.
  2. Candlesticks have acquired an impressive reputation for detecting key deviations in price actions, such as retracements and reversals.
  3. Candlesticks are comparatively simple to study and interpret.
  4. As candlestick structures are visually distinctive, they can be easily identified on trading charts.

A number of famous candlestick patterns were introduced in section 2. A few more are now introduced.

7.5.2 Bullish Engulfing Pattern

This formation comprises two candlesticks and is a serious sign that a bearish trend could soon be ending. The initial candlestick consists of a tiny black body. The second possesses an exceptionally larger white body that totally swamps the body of the primary candlestick. The subsequent figure presents an example.

7.5.3 Bearish Engulfing Pattern

This formation comprises of two candlesticks and is a serious sign that a bullish trend could be ending. The initial candlestick consists of a tiny white body. The second possesses an exceptionally larger black body that totally swamps the body of the primary candlestick. The subsequent figure presents an example.

Developing a Candlestick Strategy for Binary Options Trading

An example of a candlestick strategy will now be illustrated which utilizes the Bullish and Bearish Engulfing Patterns. Refer to chapter 8 for detailed guidance about how to perform this task. This strategy generates its best results when price is advancing within a restricted horizontal channel.

1. The asset chosen is the USD/CHF.

2. The expiry time selected is the Daily.

3. The primary indicators are the Bullish and Bearish Engulfing Patterns.

4. The exponential moving averages, EMA50 and EMA9, are utilized to verify the creation of a new trend.

Activate the daily USD/CHF chart and install the EMA50 and EMA9 exponential moving averages. The ensuing figure presents such a setup. A ‘CALL’ binary option was instigated with a daily expiry time at the bottom- left of the diagram following the creation of a bullish engulfing structure and EMA9 rising above EMA50. This position was closed at expiration following the appearance of a bearish engulfing formation and hammer as demonstrated towards the top-right of the next diagram.

Trade Entry Conditions:

Entry conditions are defined as follows.

1. Open a new ‘PUT’ binary option after you identify a bearish engulfing pattern and EMA9 is lower than EMA50. Close your position at expiration or when you detect either a candlestick bearish reversal pattern or the EMA9 rising above EMA50.

2. Open a new ‘CALL’ binary option after you identify a bullish engulfing pattern and EMA9 is higher than EMA50. Close your position at expiration or when you detect either a candlestick bullish reversal pattern or the EMA9 dropping below EMA50.

Use well-proven risk and money management concepts to determine your position size so that you do not risk more than 2% of your entire equity per position.

More About Adam

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

How can I use candlestick chart to trade binary options?

The Japanese method of analysis has been developing for centuries, when in America they didn’t even know what a stock market is. At this time the Japanese were already trading futures on their rice.

In fact, the Japanese candles contain a lot of information and wonderfully reflect the psychology of trading. All Japanese models are explained from the psychological point of view, that is why they do work, but not everywhere.

The most important rule is a dense connection of candlestick configurations and signals of technical indicators and volume. Trading solely on candle figures is forbidden. T.

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