How to read Retracements , Retracements patterns in Binary Options of Forex trading and how to deal with it?
September 08, 2020
Answer: Firstly, relating the retracements concept with the help of real-life definition is key to understanding retracements.
Definition of Retracements with real-life know definition:
In real life Price Action,Retracements should be compared with Newton's third law of motion that is "For every action, there is an equal and opposite reaction".
Similarly, retracements in Forex or stocks trading are the same where buyers from thebuyer'sarea take action and sellers from theseller'sarea react and vice versa. The thing we should note here is whether the reaction is equally opposite or not.
Now if sellers in those areas are weak then their reaction is not equal and the major trend continues. I.e. Buyers again react to sellers' actions. This continues until the reaction of one side (Buyers or Sellers) becomes equal and then starts dominating. This is what we also know as Momentum Shift.
Momentum and Trend are the most influencing factors in trading. That’s why if the retracement occurs in an uptrend then the buyers reacted strongly to it and take the priceup.Whereas if occurs in downtrendsellersreact more strongly and take the price down.
- We have to keep watching the strength of a minor trend and major trend simultaneously which will show us the mentioned 3 possibilities.In the case ofUptrend, 1-2-weak bearish candlesticks
- In the case of Ranging, 2-4 bearish candlesticks almost reach to most recent Buyers area
- In the case of Downtrend, 1- 2 weak bullish candlesticks.
There are more retracementstypes but these 3 explained are more confirmed and trustable.
1. Retracements in Uptrend and its continuation pattern
The following image shows you the retracement that occurred in an uptrend and how its continuation pattern will look like.
A more confirmed retracementspattern is when you find candle 1 is strong, candle 2 is strong but not as strong as candle 1, candle 3 is weaker than candle 1& candle 2, and candle 4 is stronger than all 3 candles as shown in the below image. The 5thcandle opening is the right time to enter the CALL binary options trade.
2. Retracements in a Ranging market and when to avoid trading if you are a trend trader
The following image shows you the retracement that occurred in a ranging market and how it looks like.
‘Not to enter atrade 'adviceis for binary and digital options traders and mainly for TREND Traders not ranging market traders. The above image shows the rule of Newton’s 3rd law of action & reaction. This is because the buyers and sellers are equal and opposite.
By seeing this, one shouldimmediatelyunderstand that price is now entering the ranging or flat market becauseit'sno more following a pullback or retracements concept. Here the probability that the price will go up or down is 50:50.
3. Retracements in Down Trend and its continuation pattern
The following image shows you the retracement that occurred inadowntrend and how its continuation pattern will look like.
The psychology of selling an asset is a lot quicker than buying the same asset. That is because most of the traders will start selling as soon as they see one strong sellers' entry. This is because of the fear of losing profit.
That’s why in the downtrend retracements pattern, you will mostly find 1 weak bullish candle, and a major trend will kick in.
In Downtrend, the 4thcandle opening is the right time to enter a PUT binary options trade. If candle 1 is strong, candle 2 is weak and candle 3 is stronger than candle 2 as shown below.
Do not ignore the trend and momentum in the below image which clearly shows how there are continuously bearish forming and how sellers are dominating.
Once you get familiarized with the above concepts of retracements, retracements patterns, you can then use Fibonacci retracements tools to cross-check whether similar patterns appear at Fibonacci Levels.
If that’s thecase,then yes you can take and win some binary options trade.
Since Fibonacci retracements tools or levels do not show a clear picture of momentum and trend, I have developed a strategy with help of SMAs and RSI to identify the retracements area. This strategy calculates and marks the area until which the price will pull back or retrace.
This is detailed explained in the Part-9 of my freely available on my YouTube Channel course.
If you want to learn about price action concepts, visit my course videos playlist on youtube. I am sure, most of your queries will be answered.
More related topics for readers:What is price action and how to read it?
😀If you are planning to open anIQ Optiontrading account, use thislinkfor registration.
⛔ This is not investment advice, your capital is at risk. You should never invest the money that you cannot afford to lose ⛔
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Comments
John GraceFebruary 2, 2021 at 10:06 PM
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