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Binary Options

January 21, 2013

‘Tweezer’ Binary Options strategy

Ttop1 300x137 trading strategies binary options

The Tweezer strategy for trading binary options is basically a Call/Put strategy which can also be modified to trade the Touch/No Touch trade option. The strategy employs a candlestick formation known as the Tweezer pattern. The Tweezer pattern can occur at the top of the trend (where it is known as a Tweezer Top) or at the bottom of a trend where it is known as the Tweezer Bottom.

The Tweezer Top is a candlestick pattern that consists of two candlesticks. It is a bearish reversal pattern and the appearance of a Tweezer top at the top of an uptrend gives an indication that the asset in question is about to reverse downwards.

The Tweezer Bottom is a candlestick pattern that consists of two candlesticks, but in this case, it is a bullish reversal pattern. The appearance of a Tweezer bottom at the bottom of a downtrend is an indication that a reversal to the upside is a highly likely event.

What makes up the Tweezer candlesticks?

The Tweezer Top is formed by two candlesticks:

• The first candle in the formation is a bullish candle (the Day 1 candle). It has a long body and one short shadow located below the body.

• The second candle in the formation is a bearish candle (the Day 2 candle). The opening price of the Day 2 candle is the same as Day 1’s closing price the closing price of the Day 2 candle is below the Day 1 candle’s opening price.

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The bullish Day 1 candle represents the prevailing sentiment in the market which is an uptrend. However sellers enter the market immediately the ay 1 candle closed, sending down prices below the opening price of the Day 1 candle and eliminating its gains. This is an indication that the sentiment for the market has changed and this is why the Tweezer top is a bearish reversal formation.

 

TRADING THE PUT OPTION WITH THE TWEEZER TOP

The Tweezer top is used to trade bearish reversals, and this makes it suitable for trading the Put option in the binary options market.

Any time frame can be used to trade the strategy, but the time frame must be taken into account when setting the expiry time for the trade.

a)      Wait for the Tweezer top formation to form on the charts as shown in the chart example below, then place a PUT option in your binary options platform. The option goes by several names, so if on your platform it shows as BELOW, DOWN, LOW, FALL, etc, use any of these options to execute your trade.

b)      Use the time frame chart on which the trade was analyzed to serve as a guide for your trade expiry. The example below was obtained on a four hour chart, therefore the expiry should be at least 6 to 12 hours to allow the trade to move firmly into profit position.

TRADING THE TOUCH/NO TOUCH WITH THE TWEEZER TOP

Similarly, the fact that the Tweezer strategy is a directional trade strategy allows the trader to trade the TOUCH trade in the direction of the reversal, and to set a NO TOUCH trade in the direction opposite to that of the reversal.

a)      Once the Tweezer top has formed, use a strike price located about 30 pips above the high of the Tweezer top as the strike price of the NO TOUCH trade, and set an expiry using the time frame on which the analysis was made as a guide. In our example, we used a four hour chart, so the expiry would be set to at least 6 to 8 hours after the Tweezer top pattern has formed.

b)      Simultaneously, set a strike price for the TOUCH trade at about 40 pips below the Tweezer top pattern formation, and set an expiry of at least 12 to 48 hours for the trade. The chart below sums up all the trade information:

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The Tweezer Bottom is formed by two candlesticks:

• The first candle is a bullish Day 1 candle which has a long body and one short shadow located above the body.

• The second candle is a bearish Day 2 candle. The opening price of the Day 2 candle is the same as Day 1’s closing price while the closing price of the Day 2 candle is above the opening price of the Day 1 candle.

 

The bearish Day 1 candle represents the prevailing bearish sentiment in the market. Buyers come in immediately and not only counter the selling pressure of Day 1, but erase all the gains of Day 1 and end higher, signifying that the sentiment in the market has changed.

TRADING THE CALL OPTION WITH THE TWEEZER BOTTOM

The Tweezer bottom is used to trade bullish reversals, and this makes it suitable for trading the Call option.

Any time frame can be used to trade the strategy.

c)      Wait for the Tweezer bottom formation to form on the charts as shown below, then purchase a CALL option on your binary options platform. The option may be shown as ABOVE, UP, HIGH or RISE on your platform, so simply enter the corresponding trade.

d)      Use the time frame chart on which the trade was analyzed as a guide for your trade expiry. The example below was obtained on a one hour chart, therefore the expiry should be at least 4 hours to allow the trade to move firmly into profit position.

TRADING THE TOUCH/NO TOUCH WITH THE TWEEZER BOTTOM

The trader can also trade the TOUCH trade in the direction of the bullish reversal, and set a NO TOUCH trade in the direction opposite to that of the bullish reversal.

c)      Once the Tweezer bottom has formed, use a strike price located about 30 pips below the lows of the Tweezer bottom candlestick formation as the strike price of the NO TOUCH trade. In our example, we used a one hour chart, so the expiry would be set to at least 2 hours after the Tweezer bottom pattern has formed.

d)      Simultaneously, set a strike price for the TOUCH trade within 40 pips above the Tweezer bottom pattern formation, with an expiry of at least 6 to 8 hours for the trade. The chart below sums up all the trade information:

The best signals are obtained when the Tweezer strategy incorporates the use of support and resistance as confirmatory signals for the Tweezer top and bottom patterns, or when indicators that indicate a period of reversal are used. An example of such an indicator would be the use of the overbought/oversold Stochastics indicator, using the overbought signal along with the Tweezer top or the oversold signal along with the Tweezer bottom as confirmation for the signals that are used to trade the Tweezer strategy in the binary options market.



About the Author

Richard Jay
Founder/Editor of TradingOpinions.com. Trader of 15+ years, mainly Technical Analysis and Quantitative Trading. Lives in rural England with his wife and young daughter.




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