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PRICE ACTION – PINOCCHIO (PINBAR) REVERSAL PATTERN

We all know the story of Pinocchio – the boy whose nose grew longer anytime he told a lie. A pin bar is alsocalled a Pinocchio bar because it is telling us that the market is lying and the length of the pin indicates theelongating nose of Pinocchio.

As the market price moves in the direction of the trend to a certain level, it suddenly retreats all the wayback to near the opening price. Thus, it lied as to where the price was headed and should start moving inthe opposite direction. Particular importance should be given if Pinocchio was formed on the importantlevels of support, resistance or round price levels.

Lesson 7 - Trading models in binary options

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How does this pattern look, and what conditions must be met according to this strategy:

Model consists of three candles (bars)

The key candle (bar) that is in the middle should have a small body, i.e. opening and closing pricemust be close to each other. The smaller the body of the candle, the stronger the signal.

Middle candle must have a large tail (shadow), which goes far beyond the surrounding candles.

Candle body must be within the previous candle.

Candle body must be on one end of the tail, essentially looking like a mallet or hammer

On the pictures you can see examples of Pinocchio (Pinbar):

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What is the Pinocchio strategy for binary options?

Assume the price of an asset for some time had an uptrend or climbing up. Once you see that the patternbegan to form, or rather candle (bar) with a large tail, analyze it and see if it fits the parameters that Ihave listed above. Wait for the next candle to cross the maximum or minimum of the key candle and openthe option in an opposite side of the tail.

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This screenshot shows a graph with the 1H timeframe, where each candle represents the movement ofprices in a given 60 minutes. You can see already formed pattern. According to the strategy for binaryoptions, you must buy a Call option at the point, which is marked by a black line in the picture. The ExpiryTime in this case, is 60 minutes.

In general, the expiry time should be equal to the time of thepin bar formation. This strategy can be used on options withdifferent expiry times. If the expiry time is 15 minutes, thenlook at the 15M chart, and if you are analyzing 30 minuteschart, the expiry must be also 30M.Pay special attention toPinbars that are on the highs and lows or close to criticallevels. If a Pinbar surrounded by candles with small bodies, itis better to skip it and don't trade.

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PRICE ACTION – DOJI BAR REVERSAL PATTERN

A Doji is a reversal model that is formed when the open and close prices of a candlestick (bar) are the same(or almost the same), and there is little difference between the high and low.

This model reflects the uncertainty of the market and it is likely that the price of an asset will reverse andgo against the prevailing trend.

What Doji can be taken into account:

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Strong trend before the formation of the pattern

The open and close price of a Doji candle are the same or nearly the same

Before Doji candle, there must be a large full-bodied candle going in the direction of the trend

After the Doji candle, there is candle which goes in the opposite direction of the dominant trend

Doji in binary options strategies

Suppose before the formation of a Doji candle, asset price was going up all the time (there was anuptrend). A Doji candle has been formed, followed by a candle moving in the opposite direction – down. Youshould buy a PUT option after candle breaks the LOWER extreme of the Doji candle. Same applies when Dojiwas formed in an downtrend; buy a CALL option upon the breakout of the higher extreme.

As you can see it’s a very simple model that helps a beginner to make money on binary options. The mostimportant is to strictly follow all the rules.

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PRICE ACTION - INSIDE BAR REVERSAL PATTERN

An Inside Bar is a reversal formation characterized by a bar that forms totally within the trading range ofthe preceding bar. Inside Bars reflect a balance between buyers and sellers or in other words uncertainty inthe market, which is sometimes later resolved by a change in trend.

What is the complexity of trading this setup: The difficulty lies in the fact that the price may go up as wellas down. So you should pay attention to the inside bar, if it is formed at the highs/lows, and if it is nearimportant price levels.

Look at the screenshot below: the price for a while was going up until it rested on the level of resistance.Further inside bar was formed, and the price reversed and went down.

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How to apply this setup to trade binary options: When the Inside bar was formed, it is necessary to getadditional confirmation of reversal (important levels, moving averages, etc.). Then, watch the candle afterthe Inside bar. You need to buy Call or Put option depending on which way the price will break outside thebar. In the case of the screenshot above, the next bar went up, so you should buy a CALL optionimmediately after the price breaks above the maximum of the Inside bar.

In regards to expiry time, we should adhere to the following rules: Expiry period should be around half of theperiod / timeframe used for chart analysis. Our screenshot above shows the 1H timeframe, so it would be a30 minutes expiry.

As mentioned above - it's pretty complicated setup for beginners, so when you see the Inside bar, youshould not rush to buy an option immediately. Practice to determine the direction and trade on paper, andthen you can apply this technique in real trading.

PRISE ACTION - OUTSIDE BAR REVERSAL PATTERN

The Outside bar is the analogy of the Inside bar setup, just look at it as the inverse model. A candle canform an Outside Bar pattern when it completely covers the range of the previously printed candle; takingout the previous high and low. This pattern tells us that market will change its trend, and go in an opposite

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direction.

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It’s not a rule without exceptions, so confirm your setups: watch support and resistance levels, Fibonaccilevels, etc.

Bars (candles) with a large body and small shadows have very high importance. This indicates a strongsignal. It’s not worth paying attention to huge Outside bars formed on news release as they can providefalse signals.

In case of formation of an Outside bar pattern, you need to buy an option in the same direction as theoutside bar.

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As you can see on the picture above, before the formation of the Outside bar model the price went up.Market reversed and the price went down. In this case we would have bought a PUT option straight afterthe closure of an outside bar. If the candle of the Outside bar quite large, it may be worthwhile to waituntil the price retraces, and you can enter at the better price. In regards to expiry time, it can be two tofive candles long based on what timeframe you used analyze the chart. If you follow an hourly chart, theperiod of expiry is 2-5 hours.

In the following lesson we will learn the most important indicators, and how to apply them to our strategy.

Home work:

1. Look at the historical price movement of a chosen asset and try to find patterns discussed inthis lesson.

2. Try to see how predictable the price was after the formation of these patterns.

Want to know more? Subscribe to my YouTube channel, where I publish useful videoexamples, how to trade binary options.

Sincerely,

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Abe CofnasProfessional trader