By Tim Lanoue
Your capital may be at risk. This material is not investment advice.
One of the most profitable and proven online investment patterns for binary options and Forex would be the versatile Price Action Trading Pattern. One of the wonders about Price Action Trading Pattern would be that it has been used by investors from a variety of different investment industries for over a decade now and it is still one of the most prominent and well-respected day-trading patterns. Perhaps the most appealing nature about Price Action Trading Patterns would be that it requires the use of zero technical indicators although access to a charting solution will still be required. If you are looking to implement a consistent and profitable investment pattern then there is no better online day-trading pattern for you.
Covering The Fundamentals
Before we dig deeper into the application of Price Action Trading Pattern though it is imperative that we know the basics associated with this investment pattern. So perhaps the most important lesson we can cover would be that PATS is possible due to the creation of order flow and price action. Order flow, also known as transaction flow, occurs when someone believes the price of an asset will move and then they decide to execute an order (transaction) in the financial markets.
Price action on the other hand is known as the direct derivative of order flow. It is essentially the summation of all buy and sell orders throughout any duration of time. This duration of time can be as little as one second or it can be infinite since time itself is continuous. To expand on this lesson, all of the movement that you see occurring while watching any asset or security is known as price action. One of the most common misconceptions that I have seen across numerous other binary option portals would be how they say price action can result in the formation of two different trends but in all actuality that is not necessary true. There are three possible market trends that can occur in the markets which will be explained further below.
In the picture provided above we have the three possible market conditions that can occur throughout the price action of any one asset or security. A bullish trend is a trend that is heading in an upward direction and it indicates to investors that the bulls (buyers) are in current control of that asset or security. A bearish trend on the other hand is when the price action of a particular asset or security is heading in a downward direction indicating to us that the sellers (bears) are in control of the markets. The last trend that we can witness and should be avoided when using this trading pattern would be a neutral trend. Neutral trends move in a flat, sideways movement and it indicates to investors that neither the buyers nor sellers are in current control of that asset or security in scope.
Setting Up The Trading Pattern
Now that you have a better grasp on the fundamentals of Price Action, let’s move to the set-up component of this trading pattern. Since this is a technical analysis based trading pattern, access to a charting solution is required. A few different reputable charting solutions that you could consider using would be MT4, MT5, and FreeStockCharts.com. Once you have your charting solution loaded, you will need to change the time frame to a period of 1 minute and make sure to select a low volatility currency pair to invest. The reason why we want to invest with low volatility currency pairs would be because low volatility currency pairs are less prone to change directions due to minor fluctuations that may occur in the market.
Some low volatility currency pairs you could consider investing when using Price Action Trading Pattern on any timeframe would be the: Eur/Usd, Usd/Chf, Nzd/Usd, Usd/Cad, Aud/Usd, and Gbp/Usd.
Application of Trading Pattern
Now that you have your charting solution correctly set up, we will move onward to the actual application process of this trading pattern. When using this trading pattern we are only looking for a PUT trade scenario which will occur after the creation of a support level and after four other confirmations are met. A support level can be best described as an imaginary price level where the price of an asset or security hits resistance and then bounces back in a bullish (upward) direction. In order for a support level to be created, we need a bearish candle followed immediately by a bullish candle and the body of both candles must accurately reflect the creation of the support level. Since I know this is quite a bit to digest an example of this trading pattern with a support level is disclosed below for you.
In order for us to move onward with our 4 required confirmations, the creation of a support level must be present. As you can see in the images above and below, each showcase the creation of a support level prior to the implementation of our 4 confirmations. The four steps that we need to occur next are as followed:
- Price heads in a upward direction (bullish direction).
- Price heads in a bearish direction and breaks our support level with a downward movement.
- Price heads back upward and breaks our support level again in an upward movement.
- Price heads in a bearish direction and breaks our support level in a downward movement.
Each of these steps need to occur in order when applying this investment pattern to your online day-trading. If one of the steps do not occur or occur in a wrong order then the investment is void, just wait for the creation of another support level then execute the four steps provided to you above.
Now, one strong recommendation I have for you guys would be to do anywhere between 250 to 500 demo account trades prior to implementing this trading pattern in a live investment situation. The more familiar and experienced you are with this trading pattern the better off you will be.
Here you will find the best free binary options demo accounts.
Price Action Trading Pattern Tips
The first tip that I can recommend for you guys would be to avoid any market reports or news releases while implementing this investment pattern. Or at least make sure to avoid press releases that have the potential of affecting the currency pairs that you are planning to invest with this while using short-term investment pattern. To see when press releases are going to be released, please feel free to visit our Fundamental Analysis Page to see all the upcoming media reports along with the predicted volatility of each report.
Make sure to avoid investing when there are neutral market trends. You need either a strong bullish or bearish trend to be present prior to applying this trading pattern in a live investment situation. If you invest during a neutral trend, the effectiveness of this trading pattern will greatly decrease.
Make sure to utilize a proper money management! When first starting out in a live investment scenario, I would recommend getting started with a passive money management approach which requires you to place 3 to 5% of your total account balance per investment. However, once you become more acquainted and comfortable with the application process of this trading pattern, you can move to a more aggressive form of money management, which requires 7 to 10% of your total account balance per investment.
Change your time frame to a period of 15 minutes, 30 minutes, 1 hour to even 4 hours. Although this trading pattern was strictly designed for the turbo-option version of binary options investing, one of the wonders about Price Action Trading Pattern would be that it is applicable on a number of time frames. Typically Price Action Trading Pattern is invested on a 15 minute or 1 hour time frame to generate the best investment results, although all the other time frames are consistent and effective as well! Just make sure if you do make this adjustment that you change your expirations time to one similar to your time frame.
Do not overtrade! One of the worst habits an investor of any experience level can develop would be to start overtrading. One truth that I always preach in regards to binary options would be that investing binary options is like a marathon, not a sprint! All you need to effectively and greatly supplement your income on a short-term and long-term basis would be to place a maximum of 3 to 7 investments per day.
Another common mistake made by novice binary option investors would be that they try to chase losing investments. They believe that if they can just get that one losing trade back and make a small profit in the process that they will be much better off but more likely than not you will lose that investment as well and just put yourself in a worse situation than you were beforehand. I always apply the 2 loss stop rule where if I lose two consecutive investments I just stop trading for the day. I can promise you that you are going to have some losing days, it just happens, but make sure to take one day at a time and make the most out of each and every investment that you place!
60 Seconds Price Action Trading Pattern Conclusion
Investing online with binary options is a great way to make money online from home as long as you have profitable investment pattern, software or system to deliver you the results that you are looking for. Price Action Trading Pattern has been not only one of the most consistent day-trading patterns but also one of the most accurate trading patterns for all forms of investing!
As always if you have any questions or feedback to share, please feel free to leave a comment below. We are a fairly active community so the more feedback that we receive the more everyone in our ever-growing community benefits!
Enjoyed Tim’s post? Check out his Advanced Price Action Trading Pattern article.