› Reversal Trading Strategy for Binary Options - How It Works

Reversal Trading Strategy for Binary Options - How It Works

Have you ever observed a continuous trend thinking is it worth to make a bet or is the right moment already gone? This happens to every trader especially at the beginning of the career. It is understood, on one hand, it is more reliable to make a bet by the trend, but on the other hand, it is rather dangerous to try jumping on a stair of an ongoing train.

What is a Reversal Trading Strategy?


Trading strategy Reversal will help you to identify correct entry points on pullbacks of a trend action. The rates can not grow every time or decline everytime. Charts are always like waves and corrections occur periodically from the main trend. Such retracements are called pullbacks and they have to be considered as awesome entry points during a trend action.
Reversals are based on overall price direction and are not typically based on one or two periods/bars on a chart.

How to Use Reversal Trading Strategy?


If you take any chart with a 15-minutes timeframe as an example, you will see that prices rise all the time during some continuous trend. All of the oscillators, most probably, are in the overbought zone and it seems like a reversal is going to happen very soon. But it would be a huge mistake trying to catch a reversal with such a strong trend. It is much more productive to bet according to the trend. Most of the profitable strategies are based on exactly the same approach. All of the bullish candlesticks have an upside shadow which means that the price was not going up all the time, there were bounces happening. We could use those bounces to enter the market and get a good profit as the result. It is obvious, of course, when you look back on the history. But how can we identify an entry point in real-time conditions? It is rather easy to do and we will tell you how.

If you like this strategy, you might also be interested in this Hanging Man Trading Strategy

Advice for Trading Reversals


If you see a strongly marked trend on any chart, then it would be very easy to find an entry point using a shorter timeframe for the same chart. It is very important to understand that every bullish or bearish candlestick consists of many full-size candles of a shorter timeframe, which can be analyzed as well.

We change the timeframe from 15-minutes to 5-minutes and we add the following indicators:
  1. Bollinger Bands;
  2. MACD;
  3. MA with period 10.


Reversal Trading Strategy for Binary Options - How It Works

Examples of Signals from Reversal Trading Strategy


Now as we remember that the longer timeframe has a strong uptrend, we can start trading on retracements. The bets have to be done in the direction of the longer timeframe trend, in our case, upside only.

Look at what signals do we get from the strategy:
  • Deal opening rules for the uptrend of the longer timeframe:
  • The chart has to be between the upper Bollinger Band line and MA with period 10;
  • MACD histogram has to raise;
  • Bets should be made on the candles’ bounce to MA10 with expiration for 1-2 candlesticks ahead.
  • Deal opening rules for the downtrend of the longer timeframe:
  • The chart has to be between the lower Bollinger Band line and MA with period 10;
  • MACD histogram has to decline;
  • Bets should be made on the candles’ bounce to MA10 with expiration for 1-2 candlesticks ahead.


We can catch such awesome deals in this simple way on price bounces from the main trend. We called the binary options trading strategy as profitable not just like that but because it is suitable for all of the timeframes. But if you are going to use timeframes 15-minutes and 5-minutes as we showed you the example above, you will be getting much more binary options signals than say timeframes of 1-hour and 4-hours.

CONCLUSION


The reversal strategy will work until the trend on the longer timeframe will be kept by the price action and the chart will be still between one of the Bollinger Bands lines and MA10. It is better to stop trading when the chart would break through MA10, just to avoid potential losses trading against the trend. Any other indicators could be also used as additional filters. For example, Force Index, Parabolic and reversal candlestick patterns could be used for that purpose. The main thing is to avoid sorting out unsuccessful deals using the Martingale method as it is not going to help you on the trend reversal.


Read also

You have successfully registered

You can choose the needed type of account at any time!