Price reversal: open an option or not?
- VFX Blog
- For beginners
When there is a trend, you always want to be with everyone and take a trade where everyone goes. But you can do the opposite, deciding that I am the cunning one who knows how to make money on binary option when the rollback starts. Moreover, moneymakers and other big players do just that.
What does a "real" rollback look like?
A rollback or rebound in this article will be called a situation when a price reversal begins from a significant level (intraday max/min, Pivot Point, etc.) or a graphical pattern on the chart (the boundaries of trend channel, Fibonacci, the release of fundamental news).
We can say that this is the opposite of a breakout, when the market starts a strong movement, confirming top binary options signals. In our case, it is most often speculation, profit/loss fixation or unsuccessful attempt to change the balance of bulls/bears forces.
There are two scenarios for the development of the situation:
- The price will return to its original positions;
- There will be a short and narrow consolidation after which the trend will recover and there will be no rollback.
The more unsuccessful retests (at least 2-3), the more effort you need to make to break through the corresponding level. Therefore, before trading, it is recommended to find out what the correction is related to: there may be a large accumulation of pending orders of large players or other "open interest".
Examples real binary options signals rollbacks from supports/resistances levels:
Conditions for a "true" rollback:
- The rolled back candle closes far below or below the estimated level.
- Look at the size of the body: if it is greater than the average volatility of the past 5-7 periods, this adds reliability to the signal;
- If there is no reverse breakdown on the next 2-3 candles, the rollback can be considered confirmed. We warn fans of short-term options from a small expiration: a rollback is a more unstable structure than a breakout, so the transaction should last at least 4-5 candles of the working timeframe.
We always monitor the dynamics of changes in market volumes (even tick volumes) through the binary signal software until the rollback is completed. If it is not accompanied by a rapid rise or fall, then it is just a speculative impulse.
How to recognize a false rollback
The term "false" means a rollback with a quick return from the original prices or even the beginning of a breakout of the level. Here, in all its glory, the "herd" instinct of small players and beginners is visible, when they try to "catch up" with trend without careful analysis. And the option opens when the movement is almost over.
At the heart of such technical patterns as Fibonacci levels, Pivot Point, Murray and the like are precisely several consecutive unsuccessful retests, and you can try to open trades “against all” at the first signals of a rollback from the binary option strategy!
False Breakout Signals:
- The search for a trend and significant levels goes from the higher timeframes to the one on which the option will be opened.
For example, if there are binary options forex signal a medium-term or long-term trend on H1-H4 timeframes, and false rollbacks/breakouts appear starting from M30, then most likely we are faced with speculations from market makers that “squeeze out” other players, especially beginners entering the market just before the end of the trend.
- The basic rule applies: the larger the timeframe, the more reliable the market forecast!
- Look at the technical and graphical levels that accompany the rollback. A candle with a large body and small shadows closed below a significant level will be a good confirmation of the pullback. Models like "Double Top/Bottom" and "Head and Shoulders" tend to focus a lot of open interest on their extremes points;
Visually, it looks like a series of multidirectional impulses and unsuccessful retests, after which the quote quickly rolls back to its original values.
- On medium and long-term free live binary signals, the rollback moment should be below (on a downtrend) or above (on an uptrend) the Close price of the previous day;
- If the rollback is from the trend support/resistance, and on oscillators such as the MACD/RSI/Stochastic divergence, the signal is likely to be false.
Choosing a strategy
Once we have seen the truth of the rollback, it is necessary to choose the method by which we will trade. There are many classification options and one of them is by price type, which is good for exact binary option strategy:
- Any support / resistance, including "round" levels, where the last two digits of the quote are equal to 00 or 50;
- Trending of the border and the middle line;
- Strong price max/min: daily, weekly, calculated;
- Past and current levels of average volatility.
Important: even if the pullback is clearly visible, visual perception cannot be the only entry signal, no matter what strategy is used. Always look for confirmation on the oscillators and volumes.
Also, do not forget that any rollback carries with it hidden speculative components, therefore, using this type of trading, you must use more stringent money management.
Also, do not forget that any rollback carries with it hidden speculative components, therefore, using this type of trading, you must use more stringent money management.
The binary trading platform of any serious broker contains its own set of strategies, but all of them can be divided into the following groups:
1. Non-indicator. They are based on graphical analysis and its extensions, the most common of which is Price Action. This approach attracts newbie’s because it seems simpler to them, but in fact it requires considerable experience in quickly recognizing patterns that rarely appear on the graph in the classical form.
In addition, there are people who do not have the ability to visually analyze the pattern, in this case, you can try to develop this ability using special techniques or if the result is not there, switch to more indicator trading binary signals.
2. Rebound from the trend line. The most "ancient" but at the same time reliable and stable trend following strategy, which is based on a simple principle: when the market rises (bullish trend), we work on a rollback down, respectively, when the price falls, we work out an upward movement
3. Rollback from intraday price levels. Strong pullbacks usually occur as a result of the actions of large players striving to shift key levels in the direction they need, or by working out numerous pending positions. For more details on how it works, see the “Tricky trader” strategy
On any timeframe and trading asset there are always significant price levels and if we remember that market makers and best binary signal provider always see the open interest of small participants and their open positions, it becomes clear why this strategy is used for forced and short-term market swing.
An example of rollback options from "round" levels with confirmation from Stochastic (reversal down from the overbought zone).
As you can see, everything works fine. The main thing is to choose an asset with not very high volatility, and pronounced trend areas, for example, the Euro/Dollar (EUR / USD).
4. Moving averages. The reliability of live trading signals increases significantly on the pullback movement from simple (SMA) and exponential (EMA) moving averages with a length of 200, 50 or 20. Especially "strong" 200-period, here the rebound can mean a complete change in the trend.
5. Rollbacks from price extremes. One of the best combinations is a price channel and a power level at the same time. A local extreme indicates a new border of the price fluctuation range: max - resistance level, min - support level.
6. Rollback of the max/min of previous periods. If in the previous case we meant intraday price extremes, then in this case we will talk about such strong levels as a pullback from the boundaries of the previous daily range (as an example, we can cite the "80/20" strategy from Linda Raschke).
The recommended timeframe is from M30, the expiration time is 2-3 candles of the working timeframe (at least 5 minutes).
7. Bounces within price channels. Such trading can be used after news and high volatility during a flat, when the channel is wide enough. Option: Donchian channels by max/min and Bollinger bands by moving averages. To filter false rollbacks, we retest the borders and the middle line using historical data.
Summarize. Trading on rollbacks gives a stable profit, but no more than other options strategies, although in advertising paid products they are often advertised as "quick earnings". It is important to understand that profitable expiration is not only the result of correct analysis of how signals work for binary options; the broker must also work with high speed and minimal slippage.