I’m a trend trader. I trade levels, but always within a trend. The vast majority of my trades – Futures, Forex, Binaries or Equity Options – are with trend. Where trend is defined by a combination of the Kumo and a couple moving averages.

In my view a reversal is a trend on a smaller compression. But when I’m trading the smallest meaningful compression the only way to trade a reversal is as a reversal. I would skip them entirely except that if you use leverage the extra ticks make a big difference in account growth.

binary options reversal

This price action is from the GBP/USD Sept 6th NY morning session. I didn’t trade it because I was in the NasDaq but in my view it’s a good example of a reversal. LHS impulse move through the Kumo & EMA Cloud(8,34) followed by a downward drift. There are two decent, but not great, with trend Doji entries in the EMA Cloud on the way down.

In addition to the Kumo & EMAs I rely on what the candles are telling me. These are 133 tick candles so they form pretty quickly, but they are not noise – they represent 133 transactions each and I believe that in trend context provide meaningful information. For the way I trade I vastly prefer them to time or range based candles.

The candles are colored according to Elder Impulse. This coloring scheme is a function of a MACD Histogram and an EMA. If both the EMA & Histogram values are higher or lower for the current candle than for the previous candle the current candle is colored green or red, otherwise it’s blue. When applied to tick charts this scheme provides an intuitive, clear view of order flow.

The highlighted green candle is a decent reversal entry. The downtrend was not very strong, it has moved a couple legs, there are 5 blue (neutral) candles followed by a green (incentive) candle that breaks the 8 ema. In addition both price and lagging price (the yellow line) have a decent amount of room until likely resistance.

If you trade this with Spot or Futures your initial stop can be very tight because in the case that you are correct price is almost never going to move below the green candle. With spot you have to stay clear of the spread range but with Futures you can get really tight.