Contents:“50% of The Previous Candlestick” is a technical strategy helping traders determine trading opportunities via high-quality reversals. Mainly based on price action principles, the strategy is a splendid tool for market participants who love simplicity. In this article, we will guide you step-by-step how to use the strategy correctly to collect signals in the binary options market.
Overview of the 50% of The Previous Candlestick Strategy
The market is always a fierce fight between bulls and bears. Every candlestick denoted on the binary options candlestick charts shows what force is advancing and dominating. When the buy side is more energetic, prices will trade higher. When the sell side is more vigorous, prices will trade lower. Therefore, reversals can be spotted through the form of the candles: bullish momentum can be considered weakening given that a bullish candle is followed by a large low-close bearish one, whereas bearish momentum can be considered weakening given that a bearish candle is followed by a large high-close bullish one. Given those situations, market sentiment is likely to change, and it’s time for the 50% of The Previous Candlestick to detect reliable trading occasions.
Candlestick charts originated in Japan over 100 years before the West developed the bar and point-and-figure charts. In the 1700s, a Japanese man named Homma discovered that, while there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders.
To make the strategy’s filter better, its developer also adds two prevalent momentum oscillators: Relative Strength Index (set of 7 days) and Stochastic Oscillator (established with parameters 5-3-3). Their main function is to check whether market momentum is about to be exhausted, reinforcing further the reliability of the defined reversals.
After being tested from January 2017 to January 2018, this technical strategy’s win ratio is so far confirmed at 81.45%. It fits the British Pound – Japanese Yen currency pair and works best on the 1-hour chart.
Just like a bar chart, a daily candlestick shows the market's open, high, low, and close price for the day. The candlestick has a wide part, which is called the "real body".
Let’s review some trading examples to see how to use the 50% of The Previous Candlestick effectively.
How to Use the Candlestick Strategy in Binary Options Trading
A call opportunity is presented when the following conditions are satisfied:
- The RSI remains in the oversold territory.
- The Stochastic Oscillator line is below 25.
- A bullish candle which absorbs its previous bearish one (or at least covers 50% of the previous bearish candle’s body) is presented.
Conversely, a put occasion is determined when the following requirements are met:
- The RSI remains in the overbought area.
- The Stochastic Oscillator line is above 75.
- A bearish candle which absorbs its previous bullish one (or at least covers 50% of the previous bullish candle’s body) is presented.
Below are the rules when using this technical strategy:
- Only one position should be entered at a time.
- A trading signal is confirmed valid only after the candle of confirmation is fully closed.
- Don’t trade if price remains in a strong and smooth trend.
- The order’s expiration should be set in four to six hours.
- The maximum risk for each transaction shouldn’t be more than 2% of your total balance.
Pros and Cons of the Candlestick Strategy
- Simple, easy-to-use, and flexible.
- Generates high-quality signals.
- Requires no custom indicators.
- Requires a high level of patience.
- Involves risks of a counter-trend trading method.
Counter-trend strategies always involve more risks than trend-type ones. Nevertheless, if you are a reversal lover, the 50% of The Previous Candlestick could be your great companion since it’s very proficient with lots of advantages. You can as well apply it on other currency pairs; just make sure they are volatile enough. And, as with any other candlestick trading strategies, we suggest tightly using risk and psychology managing methods alongside since there’s no perfect technical system that can guarantee a 100% win-rate.