„80%+ ITM“— modify Price Action to Binary Options

Hello friends, Binary options traders!

Today, we will get acquainted with one very simple but reliable setup, capable of providing about 80% of successful transactions without a single indicator. For this, we will use the already certainly known Outside Vertical Bar model, but with some improvements. As always, the most valuable is hidden in small things.

TS Characteristics

Platform: any
Currency pairs: major
Timeframe: 5 minutes
Option expiration: 2-3 candles
Trading time: European session
Recommended Brokers: IQ Option

Idea of the strategy

The strategy is based on the well-known Price Action candlestick pattern - the Outside Vertical Bar (also called OVB). At the same time, the strategy uses not a clean model, but its modified version.

In the traditional view, the outside bar model consists of two candles, where the second (external) candle completely overlaps the previous one with its maximum and minimum. This is the essence of “absorption”.

According to the rules of the „80%+ ITM“ strategy, the second candle should only absorb the body of the previous candle. In this case, the body of the absorbed candle should be several times smaller than its overall size, or completely absent. For the second candle, the reverse rule applies - the tail of the outer candle should be minimal, or completely absent. This especially applies to the fulcrum (opening point).

The absence of shadow near the opening price is a sign of a strong price momentum. In this case, the price of opening the outer candle should coincide with either the body of the previous one or with its maximum/minimum.

Such a model gives the price a strong impulse, but for a short period of time. This is due to the choice of a small timeframe and a short expiration. It is also the main difference from the classical Price Action model, designed for large periods. In general, the classical Outside bar has a more free formation, when the size of the body and the presence/absence of shadows play a key role in the considered strategy.

Also, for the strategy, it is important to have a sufficient volatility, so it is better to refrain from trading during a quiet market. For the same reason, it’s better to concentrate on trading the main pairs, given that popular couples knowingly have more liquidity. The European session is suitable for most currencies, but some couples are more active during US trading.

Trading Rules

Call Option Purchase:

1. The first candle in the pair has a small body and a big shadow;
2. The second candle of the bull type completely covers the body of the previous candle with its body;
3. The price of opening the second candle coincides with the body or the minimum of the previous candle.

Put option Purchase:

1. The first candle in the pair has a small body and a big shadow;
2. The second bear-type candle completely covers the body of the previous candle with its body;
3. The price of opening the second candle coincides with the body or the maximum of the previous candle.

Having determined the pattern on the chart, we buy the option of the corresponding direction. Expiration time 2-3 candles, depending on market activity. If the market is sluggish, it is better to increase the expiration time.

Deals examples

Before the start of trading, I recommend setting any indicator of trading sessions, so as not to miss the time of active bidding. For a pair of EURUSD, for example, the best time to trade is London Stock Exchange operation time, with an opening at 07:00 and closing at 16:00 of GMT time.

So, the first thing we’re looking for is the formation of a candle with a very small body and a long shadow - any Doji candle or Pin bar is suitable. Then a candle with a large body is formed, completely covering the body of the previous candle. At the same time, on the chart, we see the coincidence of the prices opening, which works in the direction of the upward momentum, strengthening the reversal signal. At the opening of the next candle, we buy the Call option with an expiration of 15 minutes (3 candles).

Here, we also see a complete overlap, but, in this case, the second candle is black, which means we will bet on a down. An important point is the coincidence of the maximum of the first candle and the opening of the second one. Thus, a resistance level is formed, amplifying the downward impulse. At the opening of the next candle, buy the Put option with an expiration of 15 minutes (3 candles).

Conclusion

The advantage of this strategy of binary options is not only that it is easy to trade, but it also does not use any “magic” indicators, which often only hinder successful trading. In this case, we trade only based on the information we received from the live market, in particular - with a high degree of probability we predict the behavior of other traders.

By the way, in order to reduce the fatigue of the eye of searching for signals in the charts, the Price Action Dashboard indicator can help us. An indicator that will automatically notify you when an Outside bar is formed.

Regards, Michael

ForexTraderPortal.com