The retracement price action trading strategy relies on technical analysis, and has proven to be very helpful when trading currency pairs. It also works very well as a binary options strategy. You can also use it with other types of assets, but not always with the same success. If you’re going to use this trading strategy, be sure that you know how to use it and what to look out for.
Application of Price Action
In order to use this strategy, you will need to have an active graph or chart going for the asset in question, preferably a candlestick chart as this will help reveal the most amount of information to you in the smallest amount of space.
This strategy relies on the concept of retracement in order to work. Your first goal is to find a sharp change in price. The change can be either upward or downward as long as it is something that stands out as dramatic on the chart. Once this occurs, wait for the price to begin to reverse. This reversal should be minimal and should not be a full reversal, but one of about 10 to 25 percent of the initial gain. Once the prevailing trend resumes, create a horizontal line across the chart right at that point. Then just wait. Your goal is to see the price come back to the level that this line is drawn at.
There is a chance that it could take an hour or more before this point is approached again. That’s okay, this strategy will still work as long as the point is hit during the same trading day. Once that price is achieved, you should execute an ultra short term binary option, preferably 60 to 120 seconds in length. The direction of the trade should now be in the opposite direction that the asset has been moving in. If the asset was above this line, then once it comes down and hits the line again, then you should have a call option. If the asset was below the line and comes up to hit the line, then a put option should be used.
Things Aren’t Always Perfect
Variations of this strategy claim to have success rates of 95 percent, or thereabouts. These claims are not realistic, no matter what the person promoting the strategy might say or what they are trying to sell. If you are seeing success rates of 75 to 80 percent, then you are going to be pretty strong here. The hyperbole that many sites use in order to try to sell you something makes this strategy seem like it is not a successful one, but this is something that you need to take with a grain of salt.
There is some wiggle room for human interpretation with this strategy, and that can increase the risk of this method of trading becoming unprofitable. For this reason, rather than just going by “feel,” you need to really think hard about what constitutes dramatic, or what constitutes a sharp movement in price. Determining precise asset appropriate numbers before you begin can help eliminate the uncertainty that exists here and will help you to come up with a strict plan to follow to reduce the chances of human error. This should consist of both an amount of change and a timeframe. For example, a change in price of $0.25 in 15 minutes could be appropriate for some assets.
Also consider the fact that many technical indicators are effective because of the fact that they always have been effective. People recognize the signal and then react because of the fact that they typically work and then position themselves accordingly. This type of signal is most widely used in the Forex market, so it will be most effective in the Forex market. It will work in other marketplaces, but not with the same level of profitability.