Trading binary options is exciting and profitable endeavor. It is also one of the most accessible and easy to start. One of the skills every trader must acquire is identifying patterns and developing strategies. If you trade you start notice certain repeating patterns. The stair steps pattern is the easiest to identify even for the beginners.
The stair steps pattern develops along a trend. In the case of a downtrend, prices will experience sharp drops (long consecutive bearish candles) followed by price adjustments in repeating cycles. The result is a pattern that looks like stairs steps. The price adjustment zones will create new support and resistance levels with breakouts.
Let’s discuss a simple trading system based on staircase patterns. It is based it on candlestick analysis. If you trade with the Pocket Option, set the chart to “Japanese Candles” view.
Candles, stairs and breakouts
As discussed before, the Staircase pattern strategy does not require complicated indicators and tools. You do not have to be a rocket scientist to identify the shape of the Staircase. Even beginners understand how the candle is formed.
If you look at the Pic.1 you will see rectangles with some parts sticking out at the top and bottom. The rectangles are called candles: they show the difference of the price at the opening and closing.
In Pocket Option, the downtrend (bear) candles are red, while uptrend (bull) candles are green. It means that the red candle marks the price closing below the opening, and green candle marks the price closing above the opening.
The segments that stick out are called “spikes” or “shadows.” They indicate the maximum and minimum values of the price during the period of formation of candle (timeframe).
And, finally, the timeframe or the time interval means the time when the candle is formed. The timeframe is preset or you can set your own value.
If you set H1, it will take one hour for the formation of the candle.
Even beginning traders understand the basics and can apply a Staircase Pattern strategy.
Basic Tips for the Staircase Strategy
Here is some advice for beginners who want to try the staircase strategy:
- Choose a highly volatile asset for trading. The price must be volatile.
- Set the frame –M5. The expiration period should be less than the time of formation of one candle.
- This strategy just like any other strategy is HIGHLY dependent on the right market conditions. Some examples of how to avoid the bad market conditions are not to trade around holidays, as volume is low. Also do not trade around major news such as FED announcements.
- Do not apply the strategy during the release of important news.
- Trade the minimum possible amount.
- Apply the Martingale Principle. Increase the value of the contract after a losing trade.
Signals to Buy
The requirements for the Stair Step pattern is that in an uptrend the swing low is formed at or above prior swing high. So what was resistance is now support. The second requirement is that price pulls back in a controlled manner. Not a sharp selloff down to form the swing low.
Let’s talk about important things. How to identify the signals to buy and to sell? When the price reaches your level of interest, you need some type of confirmation. Here are some tips:
- Consider Option Call if the previous candle was green, the next candle opens in the same direction. Buy when the price is at least at one point more then the maximum (upper) of the previous candle.
If you don’t want to trade on luck and random signals, you need a trade trigger before opening an order. This is where the staircase pattern can be applied across all types of trading strategies.
Many times a market can remain in oversold or overbought territory longer than you can remain solvent. The strategy in simple terms is enter long when you spot a Stair Step pattern where price is pulling back slowly and forms the higher swing low above prior swing high.
