Candlestick charts visualize data for multiple time frames into single price bars. That is why they are very useful for building strategies. Candlesticks build patterns that help to make prediction. We recommend applying the “three-step” strategy when there is no movement in the market.
To catch the signal, pay attention to small candles following a long candle on the price chart. Your main goal is to find new small candles within the size of the previous candle. The number of candles in the model can be more than three. The model is completed when the trend starts moving into the direction of a large candle. We recommend opening a trading position immediately after the formation of such a candle.
Here is a detailed algorithm after you detected a signal:
- When small candles appear after the big candle in the direction of the trend, you should prepare for the deal;
- A large candle is formed that continues the trend;
- After closing the current candle, you can buy an option in the direction of the trend.
Buying a Call Option Using the Three Methods Model on an Uptrend
Buying a Put Option Using the Three Methods Model on a Downtrend
As you can see from the figures, the “three-step” strategy is similar to the “flag” or “torch” analysis.