Technical analysis has a significant drawback: its indicators are based on market situations that have arisen in the past. The wave theory (the theory that economic situations repeat) really works, but there are no completely identical situations, so the signals of technical analysis fail. There are drawbacks to fundamental analysis – there is never any confidence in how investors interpret the news. For leveling these shortcomings, traders additionally use graphical analysis and on patterns in binary options read on.
Types of patterns in binary options and rules for constructing strategies
Patterns in binary options are a stable graphical model that will determine the market behavior with relatively high probability in the future. The pattern theory is also based on the repetition of past events in the future, but it more accurately reflects the market situation and the psychology of traders.
Rules for working with patterns in binary options:
- The pattern theory works in relatively predictable markets where there is not much volatility. At the time of strong fundamental unrest, the construction of figures may be disrupted, therefore, at the time of the news release in accordance with the economic calendar, trading in patterns is not recommended;
- the optimal timeframe for analyzing patterns is from M15 and higher. On short timeframes there is a high risk of redrawing candlestick patterns due to inaccurate quotes, platform braking or price noise;
- It is desirable to confirm the construction of a figure, for example, with oscillators and analyze several timeframes simultaneously.
The most common figures of graphical analysis can be divided into three groups:
- vague patterns. Graphic figures that do not give an exact answer how the price will continue to behave, but allow you to pre-analyze the market. For example, see the attenuation or vice versa a potential level breakthrough;
- trend continuation patterns. They help to assess the strength of the trend and confirm its main direction;
- reversal patterns. Pivot models that signal that the market is oversaturated with sellers or buyers and will soon change direction.
Most Popular Patterns:
- triangle. It is a figure built on the levels of resistance and support, which converge at one point. A symmetrical triangle is a binary options pattern that signals market uncertainty, an option is opened only at the moment of breaking levels;
- pin bar. Pivot model formed from several candles. Side candles have different shades, the average candle has a short body and a long shadow in the direction of the initial movement. The option opens on the 4th candle with timeframe 1 candle;
- double top. In the case of the formation of a binary options pattern on an uptrend, one should prepare for the subsequent reversal. The option opens when the resistance level of the second peak breaks through.
Binary options patterns are an auxiliary tool for technical analysis that confirms the input signal. The reversal patterns are perfectly combined with Sliding, Stochastic and RSI. Tell us how you use graphical analysis figures in the comments!