Very often, the binary option trader will confront a reversal in price direction in the candlestick chart. To determine the best strategy in the context of this kind of reversal, the question that needs to be answered is: This is where three-line break charts really help. A three-line break chart will very often not show a reversal, while a candlestick chart does. When this happens, the trader needs to question the conclusion that a reversal has occurred.Reversals can be short-lived, especially if they are occurring on an intraday time frame. A three-line break reversal, once detected, is not necessarily permanent. The trader should wait for another new high or low to feel more confident.
Figure shows a scenario in which the price reversed right at a 61.8 percent Fibonacci resistance line.Getting familiar with three-line break charts will benefit the binary option trader because it will provide an unambiguous tool for evaluating the trend conditions in the market. By using three-line break charts, the trader will accomplish four important analytical objectives:1. Determine the strength of the trend in place.2. Determine whether the trend is tiring.3. Determine if a reversal has occurred and whether it is serious.4. Select binary option strike prices.
Let’s look at examples using price break with an underlying market and apply the analysis to illustrate the kind of thinking a binary option trade involves.A trader looking at the AUD/USD three-line break chart sees that the Aussie had a sequence of consecutive new-day highs, followed by a reversal of two consecutive new lows, and then followed by another reversalup. The trader could, looking at this pattern conclude that the pattern is very weak bullish.
Any weak news on global growth could cause a reversal and the binary option strike price below the previous low would be a target.The West Texas oil three-line break chart shows the dramatic reversal of oil prices in February 2011 was followed by seven consecutive new-day highs. Then came a big reversal down. This was followed by a reversal up. When a reversal is followed by another reversal, it is a very strong signal that the resumption of the direction is strong. At the end of the chart is a big reversal down, followed by a smaller new-day low, followed by a much smaller new-daylow. This is showing that bearish sentiment in oil was still there but getting tired.