There are many different strategies that you can use while trading on the stock market and one of the easier strategies that you could implement on Binomo is trading candle colors.
The main objective when using this strategy is to simply identify a large-bodied candle and trade based on the color. The candle needs to be large-bodied because it indicates that the price momentum is strongly pointing towards a specific direction.
In particular, large red candles demonstrate strong downtrends while large green candles imply strong uptrends. If you’re going to implement this strategy to earn money by trading, you could try placing a buy position after a large-bodied green candle closes. This gives you a higher chance of landing on a potentially profitable position.
To help you understand this strategy better, I’ll give you an example using the EUR/USD currency pair. I’ll be implementing the Martingale money management strategy so that my trades will have better chances of resulting in a potential profit. You’ll also see how trading based on candle colors is a relatively low risk strategy that even beginners can perform successfully.
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Tips for successfully trading candle colors on Binomo
So, you want to use this strategy when trading on Binomo?
The first rule of thumb is to identify the candle you will follow and wait until it closes. The trading position you make next should be based on the color of the candle.
Let’s say I find myself a bearish candle. Once it closes, I’ll enter a 5 minute sell position immediately, until the next candle closes lower. If the trade loses, then I’ll still enter the same position that the next candle will open at. I’ll keep doing this until I see another candle of the same color.
The second rule is to alternate your trades between green and red candles. For instance, if I enter a buy position and it results in a profit, I’ll stop trading for a while. I’ll wait first until a red candle develops, and then enter a sell position.
Here’s a chart to better explain what I’m talking about.
Trading candle colors: an explanation
In the above example, I waited for a bullish candle and entered a 5 minute “higher” position. I profited from that position, hence the first smiley face. As the next suitable bearish candle comes around, I enter a 5 minute “lower” position. Sadly, it turned out to be a loss, hence the sad face. I then entered another “lower” position, which ended well this time. That means that I profited from the trade, denoted by the last smiley face.
For this one, I again waited until a bullish candle started to develop. Once it closed, I entered a 5 minute “higher” position, resulting in a profitable trade. Next, as a bearish candle appeared, I entered another trade, but unfortunately, it didn’t turn out the way I expected it to, so it resulted in a loss. However, at the opening of the next candle, I immediately entered another “lower” position. In the end, I still profited from the trade.
In the next example, I again waited for a bullish candle to appear before entering a 5 minute “higher” position. It resulted in a profitable trade. After a series of bearish candles that are not large-bodied or suitable, I finally entered a buy position, this time a “lower” one. However, the trade ended in a loss.
Candles to avoid when trading candle colors on Binomo
Although you can technically use this strategy on any candle, it still works best on the ones of a specific type, namely the candles with a large real body and small or no wicks.
Special candles demonstrated below, on the other hand, should be avoided as much as possible since they’re much harder to predict accurately.
Another tip: you should also always enter trades at the opening of the next candle, and all trades should last 5 minutes.
Using the Martingale money management strategy, I managed to complete 5 trades – 3 wins and 2 losses. Profitable? In a way, yes.
Below is a table that provides an example of how much potential profit you can get using this system.
Does the Martingale system work when trading candle colors?
In a way, you can say that trading candles alongside the Martingale system is effective to some degree. However, most of the time, it has little potential returns.
In my experience, I traded a total of 5 times. The total trade cost was $121. The two trades that were unprofitable lead to a loss of a total $23 for me. But since I had three trades that ended up successfully, it still earned $19.
That said, although I did earn a profit using this system, it’s still relatively small especially if you compare it to the total amount that I invested just to reach this amount.
In conclusion, even though trading candle colors alongside the Martingale system can be a relatively simple and a potentially low-risk trading strategy, it’s still worth noting that results can be rather meager compared to other strategies. In other words, don’t expect very high profits if you’re going to use this strategy.
Now that you know how to use this strategy, you should try it yourself using the free Binomo practice account! You can also learn more about derivatives trading in general by checking out our full Binomo Currency Derivative trading guidebook.
Good luck on your trading journey with Binomo!