Pinocchio Strategy has gained a great name because when one looks at the candlestick chart when trading binary option, he/she will find a single candlestick with small gap between opening and closing prices, but a big line representing that during the indicated time period, either the low or the high was a tremendous outlier. This binary options strategy is quite trustworthy, but before you utilize it, you should know how to apply it properly and what drawbacks to look for.
Application Is the Key
This binary options strategy is pretty simple to identify, which makes it an extremely popular one. It’s a visual indicator; however, it relies greatly on price motion and trader psychology, offering it double whammy when efficiency is considered. Thanks to the reality that the lengthy wick, this signal signifies that traders aren’t confident in reversal that’s occurring, but instead expect the old trends to continue. Oftentimes, such type of things becomes self-fulfilling predictions, letting it to be tremendously efficient when you relate it to a bigger trading plan.
The best method to approach utilizing this binary options strategy is to watch a few diverse assets at once. After you find out that an asset tends to be in an established trend—it could either be an upward or a downward direction—then you wish to begin looking for the signs of reversal. It should only be in the starting stages. If it’s going to occur at this point, the “Pinocchio” candlestick must emerge. When it emerges, you must execute the option in direction of the earlier confirmed trend. And if it is going down, then Pinocchio candlestick must be a highpoint. After this occurs, execute the put option. In case, it is going up, Pinocchio candlestick must have the wick going downwards. When you see it, execute the call option.
Timing is essential in this. If you’re looking at 5 minutes chart, your option must have expiry of not less than five minutes, but not more than fifteen minutes. If you’re looking at one minute chart, your trade must range between sixty seconds and five minutes. No matter what timeframe you’re trading, you must carry out the trade as fast after Pinocchio candlestick as possible for you.
Drawbacks Do Happen
The biggest problem with this approach is that it does not materialize frequently. When the pattern occurs, it is quite trustworthy as long wick signifies trader indecisiveness, but it is not a pattern which pops up every day. That’s the reason why you must monitor different assets over different timeframes to try and capitalize on your possibilities of success.
Another drawback of this is the reality that it is easy to become satisfied with it. Lots of traders are attracted to risk a lot on this due to its high chance of success. Its odds of success are slightly better than the other patterns or signals, but it can fail still. You should ensure not to risk a lot, but stick to your usual 1-2% risk per trade.