Dodge Strategy: really revolutionary trading method?
What is the advantage of trading binary options, compared to other market platforms, is that it is simply enough to predict the price movement. That is the reason this market uses simple strategies that can draw the trader’s attention to a possible reversal trend.
One of such strategies is Dodge.
Individually, candle pattern “Dodge” is not a reversal, it rather makes the traders think about the balance of buyers and sellers in the market at the moment, and it is unclear yet who will push the market further.
If we draw an analogy with traffic lights, then the candle “Dodge” refers to the yellow color and calls to caution. Individually, this candle has a small body and long shadows. It shows that during the selected time frame the price did attempts to go up and down, but in the end, went back to the opening level.
This candle may signal about the reversal when after a rather strong price movement up after a bullish candle, which should, as a minimum, consist half of the body with low shadows, a Dodge candle is formed. This suggests that consumers are no longer able to raise the price and have taken a breather. The answer to this question will be the next candle, which will tell us which way the market will move on.
If the next candle is ascending, we have to miss such a signal, and if after Dodge there is a big black candle, this means that it’s time to enter the market in the sale. The answer to the question why we are trading only on a trend reversal is that, frequently, such a move happens more rapidly, and hence, the chance to make a correct conclusion is much higher.
Therefore, if the next candle breaks the minimum of the Dodge candle, this is a signal to enter the market for us.
The same situation may arise with a downward market. Thus, we need to wait for performing the same conditions, but in reverse.
To find Dodge candles, H1 is the most convenient chart, as on smaller time frames you can easily run into the “market noise”, it means that the signals are inaccurate.
On the charts of higher time frames tracking the occurrence of such a candle is fraught with the purchase or sale of options with long expiration, which will only make profit in the long-term, keeping an open trade in the market for a few days or weeks. Although, the use of these time frames is quite appropriate to confirm signals.
Entry points for the option to purchase:
To make a purchase, as was mentioned earlier, we are waiting for the following two conditions:
- Formation of Dodge candle at a downward movement;
- Appearance of the next rising candle, which exceeds the level of the upper shadow of Dodge.
At the same time, we enter a transaction at 2-3 points above the breakdown spot.
Entry points for the option to sell:
If we are waiting for the signal for the option PUT, then except the formation of Dodge, we have to wait for the formation of a big black candle on an upward trend following Dodge. The entry point into the market will be the level at 2-3 points below the lower shadow of the candle considered today.
Traditionally, for such a strategy binary options, which are called classic, are considered. Although, if we consider the nature of this trading strategy, a good profit with accurate trading signals can be provided by such options as One Touch, No Touch, In Range and Out Range.
With options No Touch and Out Range it’s all clear, and the exposed levels of non-touch and “range of missing” should be below the unbroken minimum or maximum of Dodge, after the signal of a trend reversal formed. But to work with One Touch option you shouldn’t wait for the signal formation, just predicting it. Then, it is advisable to establish a point of contact for an extremum of Dodge candle, which breakthrough you expect.
It makes sense to work with the option In Range, when the signs of reversal are not formed and the trend is about to continue its movement. Then, the items range should be approximately at a distance of 100 points in the direction of the dominant trend, beginning with unbroken Dodge extremum. Of course, the latter two options are more risky, but the potential profit also will be greater.
TERMS OF EXPIRATION
Expiration terms of options concluded on this strategy, regardless of their type, is the end of the working day, i.e., 0.00 GMT, at the closing day candle. This period is not chosen by chance, because during the day price fluctuations may be significant, but by the end of trades the price will show an emerging trend. If you trade intraday and analyze minute and five-minute charts, you have the option to invest for a short time, for 15-30 minutes, for example.
Despite the fact that such candle occurs on the chart quite often, it attests a reversal trend by no means always. Therefore, reversal signals do not occur very often. Though they are accurate enough (80% in testing), the small amount of them does not allow trading with a large profit. There are two ways out of this situation: the active use of the option In Range at a non-confirmation signal and the use of this strategy as an additional to the main trading system you are using, or as a confirmation or filtering the signals for other strategies.
Trading on the strategy described today, it is sufficient to comply with the classic rules of money management in order to avoid troubles in the form of losing a large amount of your deposit. The level of 3% maximum risk is the optimum solution when using this binary strategy. Also, do not forget that you cannot excessively overload your own deposit with a large number of options opened at the same time.
- suitable for different types of options
- provides 80% accurate signals
- it can be used as a solo strategy or as a complement in order to filter or to confirm the signals
- it is better not to open many options at the same time
- signals of trend reversal are not frequent, as a result – you won’t be able to trade with a big profit, thought these results are quite exact
- it is not convenient for trading on higher time frames
That’s all for now. Got any questions? Just ask the expert!