In this episode of Truth About FX, Walter dives into the question of how to use price action trading with forex binaries… as a newbie. He gives some few choice books to help you with patterns and charts and Hugh’s go-to book for options.
You will also learn here about this famous “Three Soldiers” and whether to use them or not.
Download (Duration: 04:35 / 5.25 MB)
In This Episode:
00:45 – turbo binary
02:23 – three soldiers
03:35 – something emerges
Why do you want to trade binary options? [Click To Tweet].
There’s more flexibility if you are trading spot forex. [Click To Tweet].
Focus on the candlesticks patterns. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Someone wrote me a letter and asks: I am quite new to trading… They’ve only been trading binary options through a Signal Service for a few months and they want to learn candlestick pattern and price action trading as applied to forex binaries.
They say, right now, they’re only trading in a day or 15-minute chart end of day strategies and they’ve been doing some 30-minute, 5-minute and turbo binaries. I don’t know what turbo binary are but that’s something trouble. What do you say to that?
Walter: It does sounds like trouble. I mean, one of the advantages you have as a spot trader and trading spot is that you can make money with the trailing exit. You can get out if the market goes past your target, or almost to your target. You can tighten your stop, things like that.
With binaries, it has to hit your target, doesn’t it? So, it’s an all or none sort of thing. Some spot traders do trade that way but I would say it sounds like this trader was using Signal Service and was like, “I’m over with”.
It also sounds like this trader is trying to fit candlestick patterns and price actions into binaries. There’s nothing really wrong with that. I guess what I would say is, there’s a couple of books that I would probably recommend.
All of Bulkowski’s books are really good. I’ll link those up in the shownotes for this episode. That’s what got me started on patterns, was reading the Bulkowski books, encyclopedia, chart patterns, and things like that.
He was looking at stock charts but I tested in forex tester and found that there are a lot of those same things were happening in forex. So, that is where I got a lot of my ideas from forex seeds for different trade system.
There’s some other ones. I’m not a big fan of some of the candlesticks charts out there. I find that some of the patterns are actually don’t test out very well and I’ll give you an example.
Some of them, like they call it the “Three Soldiers” where you get 3 — let’s say you get 3 really bullish candles in a row — and they talk about how that means it’s a bullish market and you should buy.
I’ll tell you what. I’ve seen enough of those reverse and I just don’t think, I wouldn’t trust those anymore. I feel like it’s almost too late when third one pops up there. So, those were the things… I mean you can get in those stuff, you can read those stuff but I think Bulkowski is where I would focus in on.
That is why for me, that resonated but it’s going to be one of those things where I want to ask this person: why do you want to do this? Why do you want to trade binary options? Is it like an account size thing?
It’s okay, you can do that but there’s a lot more flexibility if you are trading spot forex because you can use trailing exits and there’s all kind of different things that you’ll feel like you have a little bit more control.
Whether or not you’ll do or not, maybe a totally different discussion, but you know what I mean? You feel like you have a little bit more control when you’re trading so… I don’t really know. I mean, I would definitely focus on the candlesticks patterns in Bulkowski’s book.
I would also probably dig in forex tester. Sometimes, what you’ll find is when you look at different ideas from books and you’ll go on forex tester, something emerges from that. You don’t have to have it all lined up when you first go to forex tester.
You can work it out overtime and then you win into in testing three candle patterns. You come out of it with a totally different system but it’s something that you’re comfortable with. So, that is what I would suggest, to get some ideas by reading Bulkowski books and then dig into forex tester.
See if you can piece something together that fits with how you see the markets. That is what I would say.
Hugh: Okay, interesting. I also like to throw in one more book that helped me out. It was by Lawrence McMillan. He wrote some books on options. It’s just for a general education purposes. If you want to learn about options, I think that is probably the best book to read.
That’s the best one I heard about options and it goes through, like the Greeks, and all that stuff, if you are into that, but that was helpful to me, anyway.
Walter: That’s great. Thanks for that. That is a great advice. Thanks, Hugh.
Hugh: Okay. Thanks, Walter. Appreciate it.
Thomas Bulkowski Books:
Getting Started in Chart Patterns (2nd Edition)
Encyclopedia of Chart Patterns (2nd Edition)
Chart Patterns: After the Buy (Wiley Trading) 1st Edition
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