Binary Options Trading Pinbars and the Pinbar Strategy
by Girvan Lambert
Successful binary option traders use a large variety of strategies/systems. They alter them, they switch them up, they update them and they always keep an eye on how profitable they are. With that in mind, being able to put together trading systems based on as diverse a selection of factors as possible, has always been an essential skill. Only those who continuously adapt and attack the issue from an ever-changing angle are able to stay on top of the game, consistently raking in the profits. In my last few articles, I have focused on systems which - by virtue of the fact that they were not 100% chart pattern-based - were much more appealing for beginners. With the pinbar strategy that I'm about to detail here, I'm swinging right back to chart pattern-based systems in the purest sense of the word.
What exactly are these pinbars? Pinbars are essentially candlesticks (so calling them actual patterns is sort of a stretch), which signal the potential emergence of a trend-reversal. So if we have a bullish trend and then a bearish pinbar comes along, it may just signal that the bullish trend will end, turning into a bearish one. The same goes for a bearish trend, which can reverse into a bullish one, signaled by the appearance of a bullish pinbar.
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As the above example shows, there are two basic pinbar categories: bullish and bearish. In both categories, there are several pinbar sub-types. In the bullish category for instance, we have the dragonfly doji, the hangman and the hammer. The inverted hammer, the doji and the shooting star on the other hand belong in the bearish reversal pinbar category.
With all these fancy names, the pinbars do indeed look like sure-fire signals, but unfortunately, they're far from that. I'd say they're more of a faint clue in this respect, but fortunately, there are ways for traders to double-check on the clues offered by these pinbars, potentially strengthening them and gaining a good signal out of them after all.
The tool which essentially recommends itself for this job is the ubiquitous automatic pivot point calculator. The way it works is quite self-explanatory: the APPC draws up its color-coded support and resistance levels, and its daily pivot point. If the pinbar one's successfully identified, is indeed on one of these support or resistance levels, the signal is confirmed. The bullish pinbars obviously have to be situated on one of the support levels, while the bearish ones, at one of the resistance levels.
Those who are seeking further confirmation of the trading signal can bring in another tool: the stochastic oscillator, which is meant to pinpoint oversold/overbought levels. If the bullish pinbar occurs in an oversold situation (the lines of the oscillator cross at <25) it can be considered confirmed. Likewise, if a bearish pinbar pops up in an overbought area (the lines cross at >75), the bearish reversal is indeed likely.
If all three of the above described factors coincide, we can indeed be quite certain that a reversal is in the books.
Trading such reversals is indeed a piece of cake. In the case of a bearish reversal for instance, the trade which is called for is the PUT component of the Call/Put contract. The trade can be placed on the very next candlestick following our telltale bearish pinbar.
The Touch/No Touch zones are obvious as well: the resistance level at which our pinbar occurred serves as the boundary between the two. The No Touch one is above it, while the Touch zone is obviously below it. The pivot points situated below the above said resistance level can be used as strike prices for the Touch trade.
Before you use if for real money trading, take the pinbar strategy through some demo-account testing.