It is very common in the traders’ world to use indicators to find the best points for opening and closing transactions. But is it really necessary? Although indicators are truly useful, you do not have to trade with them all the time. You can also try a strategy that is based on the colours of the candle. Today’s article will show you how to do that.
The colours of the candles
You probably know that candles colour matters. It gives information on whether the closing price is lower or higher than the opening. If you spot a green candle on the chart, you can be sure that the closing price was placed higher than the opening price. And the red candle tells you that the closing price was lower.
There always appear green and red candles on the price chart. You will see more green candles during the uptrend and more red candles during the downtrend. Nevertheless, there will be also some red candles when the market moves upwards and some green in the downwards movement. The price changes constantly.
Consider the chart below. Observe how the colour of the candles changes. There appears a series of candles in one colour but it does not continue endlessly.
Colour candle strategy
The colour candle strategy implies opening a trading position for the price decrease following a series of green candles and opening a trade for the price increase after a series of red candles.
Set the timeframe of the chart for 5 minutes. The transaction should stay open for 5 minutes as well that is for the duration of one full candle. You can use this strategy on many instruments. The best currency pairs for it are EURUSD, AUDUSD, GBPUSD, USDCAD, USDJPY and NZDUSD.
So you need to open a transaction after a series of candles in the same colour. How many candles should you take into account? I suggest you use a series of 4 candles. You can wait for more candles, for example, 6, while testing this strategy.
Below, you will find a table for the amounts you can invest in 6 subsequent transactions. When the trade losses, you increase the investment amount to offset this loss. What I recommend, is not to trade too long and to end your trading session even if you lose all 6 trades.
Opening a short trade
The first step is to keep observing the chart and wait for a series of 4 green candles. The moment the fifth candle begins, you enter a short position. Hold it for the duration of the next candle. Increase the trading amount according to the table above.
In our example, after the first green series, we opened a position for the price decrease which ended up in the loss. The second trade also lost. The third transaction, however, brought a profit. The second series of green candles gave us a winning trade at the second entry. And the last series at the third.
Opening a long transaction
To open a long trade you should wait for a series of 4 red candles to appear. You enter at the opening of the fifth candle. Again, if the transaction losses, you increase the investment amount and open trade again. Finish when your position wins or when you lose 6 subsequent transactions.
In the session presented above, there are two series of 4 red candles marked. In the first situation, only one transaction was enough to gain profit. In the second, I had to enter the trade 4 times until my position ended up successfully.
This article presented you with an option to trade without using indicators. You just need to observe the chart and look at whether a series of candles in the same colours occur. Start with a series of 4 candles, but you can also try a different number of them.
Open a transaction at the beginning of the fifth candle after a series. Apply the martingale money management strategy which demands you increase the trading amount every time you experience a loss. Remember there is always risk in trading.
Test a strategy on the demo account, which is offered for free on the Binomo platform. You can practice there as long as you need to.
An additional filter may be added to this strategy. For instance, the Exponential Moving Average with the period of 200. When the prices appear below the EMA line, you will seek the possibilities to open a short position and when the prices are above the EMA200, to open long trade.
Enjoy trading on Binomo!