In reversal trading, the risk-to-reward ratio is higher than if you follow the trend of your asset or market. This means that the return on your trades is likely to be higher, thus cushioning any losses you may make. More risk, but greater rewards make reversal trading an exciting way to make money.
In binary options trading, you must accurately predict the price movement of an asset for making a successful trade. But speculating the price change is not easy because the binary option is a volatile market, and price trend reversals are common.
The price pattern in binary options trading is of two types, i.e., continuation pattern and reversal pattern.
You need an excellent trading strategy to make winning trades. For this, you must understand what a trend reversal pattern means. And you should also know about different types of trend reversal patterns. You need to use indicators available in the Pocket Option terminal. let us consider the Reversal strategy based on CCI and Bollinger Bands.
How to set up your trading terminal
The reversal strategy can be used on any timeframe. However, considering the specifics of the electronic contracts market, it is more profitable to trade here on smaller time intervals. The timeframe M5 is preferable together with Japanese candles. We also recommend trading highly volatile currency pair or major cryptocurrencies. We leave the parameters of the indicators as those provided by default in the Pocket Option terminal.
We will use CCI because it is the best indicators capable of warning in advance about a change in trend. The Commodity Channel Index (CCI) is a technical indicator that measures the difference between the current price and the historical average price. When the CCI is above zero, it indicates the price is above the historic average. Conversely, when the CCI is below zero, the price is below the historic average.
When the signal line goes beyond the boundaries of the area -100 and 100, then this indicates oversaturation of the market. At the same time, its approach to the 200 mark and higher indicates a high probability of a reversal of the upward trend, and a descent below the level of -200, on the contrary, indicates a reversal of the downward trend.
Bollinger bands indicate the volatility in the market. They will help with predicting the moment of reversal, at which the contract should be bought. Telling sign of trend reversal is when the price goes back to Bollinger Bands after being outside for a long time.
How to trade with Reversal Strategy
We will show you two situations: call and put.
The CALL option should be executed when the CCI line has fallen below -200 (ideally, closer to -300). At the same time, the candle on the chart should return to the Bollinger range, crossing its lower border.
The PUT contract is execute in the opposite situation, when the CCI “climbed” above 200, and the price returns to the BB range from above.
In our case, the expiration time is 15 minutes. However, if you can decide to trade on the second time frame, then the duration of the contract should be equal to the period of the formation of three candles. For example, for H1 it will be 3 hours.
All the subtleties of the Reversal strategy end there. Now all you have to do is adjust the parameters of the working area and start making profit using this trading system.