In every financial market, there is a trend that often influences a trader’s decision when making a transaction. Traders usually try to trade in the direction of the main trend in commodity, stock, and currency markets. However, in binary options, where profit is not dependent on the number of points by which the price has changed, traders can work with both the trend and its reversals.
Analyzing the market requires a trend tool such as a price channel, resistance and support levels. The “Clear Reversal” strategy authors took a simpler approach and used a universal Expert Advisor found in any trading terminal. It is important to note that trends can be short-term, long-term, or intermediate. Traders should be aware of the different trends in the market to make informed trading decisions. Additionally, understanding the trend’s strength and momentum can also help traders determine the best course of action.
How to set up your terminal for trading
The Clear Reversal trading strategy uses the Moving Average (MA) indicator as a determinant of the current trend. It is worth noting that the MA is one of the oldest tools used to analyze financial markets and remains popular among financiers today. In this strategy, the MA primarily serves as a trend line, with a recommended period of 20 when trading on lower timeframes from M1 to M5.
At this stage, binary options trading can be initiated by identifying a candle breaking the MA in a particular direction. However, this signal may lead to a false test where one bar crosses the line, only for the next one to bring the price back, as illustrated below.
To avoid false signals, the Clear Reversal strategy uses additional indicators. These indicators can help confirm the direction of the trend and signal possible reversals.
By using a combination of trend lines and indicators, the Clear Reversal strategy aims to help traders make informed decisions in binary options trading. However, it is important to note that no strategy can guarantee success in the highly volatile financial markets, and traders should always exercise caution and proper risk management. To avoid losses, the Reversal Strategy needs one more MA with a period of 5 to generate additional signal to foolproof the reversal and weed out false signals.
How to trade with Clear Reversal Strategy?
After the 20-period moving average is broken by a candle in a descending or rising direction, it can be assumed that the trend is changing. However, to confirm this assumption and safely buy a contract, it is necessary to wait for the intersection of two moving averages.
For instance, a CALL contract can be purchased when a candle crosses the moving average 20 from below, and the next candle closes above the MA. The actual option is purchased when the 5-period moving average intersects the moving average 20 in the same direction.
Similarly, when purchasing a PUT contract, the intersections occur in the downward direction, indicating a change from an uptrend to a downtrend. The trader should wait for a candle to cross the 20 Moving Average from above and the next candle to close below the MA, followed by the 5-period moving average intersecting the 20 Moving Average in the same downward direction.
Recommended expiration time is ranging from 10 to 15 minutes.
This timeframe, coupled with the recommended indicators and moving averages, provides traders with a potential opportunity to make a profit on binary options.
Overall, the Clear Reversal strategy exemplifies the idea that a single instrument, such as a moving average, can be sufficient in binary options trading. However, traders should exercise caution and utilize proper risk management techniques to mitigate potential losses.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
GENERAL RISK WARNING