The trading schools teach about the importance of trading in the direction of the trend. Indeed, it is the most conservative way of trading various assets. It is the cornerstone of many trading strategies. Traders must be diligent, focused, objective, and unemotional in their work. Some tools that day traders use to pinpoint buying points include candlestick chart patterns, trendlines and triangles, and volume.
Many new traders ask an interesting question: if trading in the direction of the main trend is the rule number one, why are there so many strategies that change or break it? For example, we could just trade on the bounce or breach.
Well, the answer is simple. None of the systems is ideal, including classic trend trading. As may know, a break of the trend line does not always mean the break of the main trend and its reversal. In some cases, it can signal the strengthened trend when the price comes back to the channel. That is why traders designed a strategy called “Illusion” because appearance can be skin deep.
Explanation of the strategy and its application
Let us start from the very beginning and say that the strategy does not violate the main principle of trend trading. All signals, calls and analysis are made in the direction of the main trend. The strategy allows for more precise entry into the transaction to reduce the risks and multiply the probability of profit.
For trading with “Illusion” strategy, you need only a candlestick chart and technical lines, which will need to be drawn through the price channel. You will see the trend lines will appear in the working area.
It is an advantage of the system that it works with all time frames and assets, provided that the latter has an upward or downward trend. Do not use the strategy in a “sideways” market.
The name of the strategy reflects its philosophy. You learn to discern an illusion and act on the signals. The option is bought after a false breakout is formed on the chart.
The strategy makes it easy to detect signals. You will see it when one candle has broken the trend line and the other has brought the price back. Thus, the main trend remained and continued.
Based on the above, the CALL contract is bought when a false breakout occurs on the support line.
In turn, the option PUT should be purchased at a false break of the resistance line.
Important Note: Entry into the transaction is made after the closure of the “return” candle. The expiration time is set in the size of one or two candles.
Why is the “Illusion” strategy highly effective?
Once again let us explain reasons why the system works on false breakouts instead of bounces or true breakdowns of the trend line. The explanation is simple: a rebound is not always appropriate for the binary options market. The lifetime of a contract is limited, and the price can “fool around” the trend line for a while. Second, a false breakout is a very strong signal. It shows that there is a set of stop orders behind a trend line. As a result when they break, there is a lot of liquidity in the market which is used by the big players to strengthen their “trend” positions by opening additional deals. As for the usual breakdown, it is a very weak signal. It does not always reverse the trend, and the price is in a sideways position for a long time, which can only mean a loss in binary options.
Trend trading can be profitable if you apply strategy. However, like any other trading strategy, there is a correct and a wrong way to do it. Before you learn the correct way to do it, read more about trading strategies.
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