What is the Engulfing Candlesticks Binary Options Strategy?
As explained in the introduction, the engulfing binary options candlestick strategy is a binary options strategy that will enable medium to advanced traders to predict when the direction in the value of an asset will reverse.
With this strategy, traders will be able to place much accurate bets and as such be able to substantially increase their overall winning odds. Read below in order to learn how this strategy works and how you can use it to your advantage.
How to use?
This strategy requires you to carefully watch the development of the candlesticks on a charting platform. Here, you will have to watch out for two candlesticks, which are side by side and fulfill the following conditions:
– The second candlestick moves into the opposite direction than the first one – The second candlestick is much larger than the first one
This strategy is called engulfing candlestick strategy because the second candlestick is “engulfing” the first one by being larger in the direction in which the second candlestick is moving. There are two kinds of candlesticks of this kind, which you can find below.
Bullish engulfing candlesticks
A bullish candlestick is an engulfing candle pattern where the first candlestick in the pattern is red while the second is green and larger than the red in the upper direction.
If you see a pattern like this, the following will happen:
– The value of the asset will most likely increase from now on continually.
This is because the candlestick pattern denotes that a large number of traders have decided to buy the asset, meaning that it the value of the asset will increase shortly. This is shown by the fact that the green candle is larger than the red one, meaning that more traders are now buying than traders who were selling before (as shown by the red candlestick).
So, in this situation you should buy a binary options contract that predicts that the value of the asset will go up in the future. You can also buy one that predicts that the value of the asset will go down and bet against this prediction.
Bearish engulfing candlesticks
The second engulfing candlestick is when the first candle in the pattern is green while the second is red. The second candle is also larger than the first one at the bottom of the two sticks.
If you see one of these patterns, then the following will happen:
– The value of the asset will highly likely decrease continually from now on.
The reason for this is that the second red candle denotes than a very large number of traders have decided to suddenly sell the asset, leading to a reduction in price. The number of sellers is now also larger than the number of previous buyers.
Recap on candlesticks
In case you have no idea what candlesticks are, then read the following lines. Skip this segment in case you aren’t a total newcomer.
Candlesticks are charting indicators used for technical analysis in financial trading and binary options. They will reveal the direction of the movement of the assets, the velocity of the movement of the assets as well as the proportion of traders either buying or selling the asset.
A candlestick is made up of a real body and the two shadows. The real body is the red or green rectangular area in the middle. A green real body denotes an increase in the value of an asset while a red one denotes a decrease.
A long real body means that the value of an asset increased/decreased substantially during a very short time frame. A short real body means that the value of the asset barely moved during a short time frame,
A second element making up a candle is are the shadows. The shadows denote the proportion of traders either buying or selling an asset. If, for example, an upper shadow is very long, it means that a large number of traders have decided to buy the asset. However, if, for example, a lower shadow is very short, it means that a low number of people decided to sell the asset.
What Kind of Predictions Can you Make?
Now you might be wondering what kind of predictions you can make using engulfing candlesticks in binary options. As you could have read above, there are basically two candlesticks of this kind, so there are two scenarios. Below you find an example on both of them.
Bullish engulfing candlestick example
Imagine the following situation:
– You notice that the value of an asset was continually decreasing for the past few hours – Now you notice that the latest candle is a green candlestick that’s larger on the upper side than the preceding red candlestick.
In this situation you conclude the following:
– The value of the asset will most likely begin to increase in the future.
As such, you have two choices. The first one is to buy a binary options contract that predicts that the value of the asset will indeed increase. The second choice is to buy a contract that predicts that the value of the asset will decrease and bet against this prediction.
Bearish engulfing candlestick example
Imagine the following:
– The value of an asset was continually increasing the past few hours – Now you notice that the newest candlestick is a red one and its lower side is much larger than the lower side of the green one
Now, you will highly likely now that the following will happen:
– The value of the asset will most likely decrease in the future and will keep decreasing for a while.
Here, again you will have two choices to make. The first is to buy an option that predicts that the value of the asset will decrease. However, you may as well buy an option that predicts that the value of an asset will increase and bet against this prediction.
And it’s actually really this easy.
How accurate is it?
Now, the obvious question is how accurate this method actually is in binary options. The engulfing candlestick binary options strategy is not one of the most popular strategies, mainly because it involves two candlesticks instead of just one.
However, it can generate substantial winning rates of above 85%. This means that using this strategy, traders will be able to generate profits all the time, no matter what. The engulfing candlestick strategy works bets with the combination of other strategies.
If you know other strategies too, then you will be able to discover much more patterns and win much more than usual. This is essential if you want to win a lot because engulfing patterns are the least frequent patterns in financial trading.
So, feel free to check out our additional pages and articles that deal with other binary options candlestick strategies such as the pinbar candlestick strategy and the doji candlestick strategy.