Profitable 1-2-3 chart patterns to trade binary options

There are a large number of technical chart patterns which appear every day on all time-frames and which can be traded profitably by binary options traders. Several of these can be considered highly reliable and, when they occur, offer an excellent probability of purchased options closing in the money. In order for a trader to effectively identify these patterns, it is well worth having a decent charting package to run alongside the binary options trading platform. Binary options platforms are currently improving the quality of the charts that they offer but quality charting software such as that provided by Metatrader will allow traders to recognise these profitable patterns with ease.

Using momentum and the 1-2-3 setup

We all know that price moves with demand which forms ‘trends’ which can last from several minutes to several years depending on the chart time-frame. We also know that price can never move continuously in a straight line up or down because of the fact that those taking profits from the price movement and counter-trend traders will always create corrections, consolidation areas and reversals. Binary options traders can use these periods of consolidation as a gauge of the market momentum, to monitor if the trend looks likely to continue and to hop back on when this is confirmed.

The 1-2-3 setup is a classic example of a chart pattern which informs traders that the current trend has taken a breather before moving on higher or lower. The pattern is formed by price moving lower or higher in the direction of the general trend. It then stops, perhaps pulling back two or three bars as if a reversal is about to occur, before surging on past the recent low or high. The pullback often coincides with the 38.2% or 50% Fibonacci ratio of the previous move and the prices failure to move beyond these to form a complete reversal allows binary options to be purchased at the recent low/high as it becomes highly probable that the general trend will continue.

Trading setups using the 1-2-3 chart pattern at a new high or low

When price moves to a new high or low and a pullback occurs it is highly probable that one of two situations will occur. The first is as described above, with a 1-2-3 setup occurring as price surges higher/lower than the recent high/low. The second possibility allows binary options traders to take advantage of a failed 1-2-3 setup through an additional chart pattern.

An example of this is if price makes a new low and pulls back to the 38.2% Fibonacci level before moving towards the recent low. However, instead of moving below this to trigger the 1-2-3 setup, it again moves higher towards the 38.2% Fibonacci level a new high probability trade setup has formed. If a price bar moves beyond the 38.2% level it will form a W shape on the chart and suggest a double bottom reversal has been formed.  Purchasing binary options to expire beyond this level is a high probability due to the fact that the downward trend is likely to be over and a reversal is underway.