The Double Red Strategy

Strategies used in binary options trading allow traders to look into immediate price action movements with the use of indicators that have been tried and tested in the market. When using these indicators with the right strategy and the right timing, any binary options trader can easily identify a price action indicator, make an accurate prediction, place the right option action, and earn a profit. These are the only times when binary options trading strategies become successful.

When the steps mentioned above are done repeatedly, the traders eyes are trained to pin-point the right market conditions to make an action. The formation of candles is an important thing that the binary options trader should master. Many strategies are based on the formations that these candlesticks indicate. Every historical close, open, high, and low will have an effect on future trades, and this is the primary skill that traders need in technical analysis.

The Double Red strategy is a binary options strategy that uses such skills of a binary options trader. This strategy is a Bearish strategy, or one that is based on the Put option trading, where a PUT option is purchased to take advantage of the market price’s decline. Now that may sound easy at first, but remember that we need to look at the candles in detail to make the success rate of this strategy high. Otherwise this strategy could be very risky especially for new traders.

Option Scalping

The Double Red binary options trading strategy aims to perform on a short-term bearish price action movement of an underlying asset. The trade period for this strategy is usually executed in a matter of minutes. This type of strategy is also known as option scalping. Because of the very short-term nature of the trade it carries great amounts risk without proper analysis. But when performed carefully by properly observing the right configuration of candles, it can be very rewarding.

Option scalping may sound sketchy to some new binary options traders. However, we should not take the negative connotation of the term scalping. Scalping in trading can be classified in two terms according to their legitimacy. Legitimate scalping is a method of arbitrage of small price gaps created by the bid-ask spread. The second sense of scalping is a fraudulent form of market manipulation, kind of like your ticket scalper at the stadium. The binary options strategy is based on the first.

But in a way, the two definitions may pose some similarities when it comes to trading. Both take advantage in selling an asset, as the binary options trading’s PUT option is a general trading derivative that takes its cue from a drop in price, resulting to selling. Much like when a scalper sells you tickets outside the stadium’s financial system, option scalping also functions out of the trades being made, but in a legitimate format.

Alternatively, the Double Red strategy can be used to trade the Rises or Highs of a binary options trade, making them Double Greens. The Double Red strategy is performed with a very short expiry that should not exceed 15 minutes. For experienced binary options traders, it is easy to spot and execute as it is easy to understand. However, it is important to reiterate the high risks involved with using such a short term strategy, especially for new users.

Identifying Double Reds

A double red indicator is composed of two successive red candles where the second red candle closes lower that the bottom shadow of the first candle. This is deemed as the succeeding trade having a price lower that what the previous trade had as its lowest, denoting a downward trend in the immediate future. The following is a list of how to properly identify double reds.

The configuration above is NOT a Double Red indicator. The shadow of the first candle runs below the close of the second candle. A double red indicator should have the shadow of the first candle above the close of the second candle. Although a put option in this instance may close in the money, this is not the usual case and traders could lose in the long run when placing options based on this candle configuration. This is a double red indicator:

As we can see, the close of the second candle is lower than the bottom shadow of the first candle. This is the proper configuration of a double red candle. If you see this, you can place a put option at for some amount at any expiry of about 5–15 minutes. Your investment may have the potential to earn as much as 95%, depending on where you trade. Just don’t forget to follow this configuration to have a higher probability of success. Here are other double red configurations:

This is also a double red indicator because the close of the second candle is lower than the bottom shadow of the first candle. But, this time the indicator results in a losing trade. This happens and it’s ok. The trick is to stick it out and put in trades for double reds consistently. The Double Red won’t win you money every time because of risks such as this instance. But if you stick to the system it can win you money on average.

This is a true double red indicator which denotes a winning trade. If a binary options trader makes a trade on the third candle, he is sure to make profit from the fact that the trade closed lower than the second. Again, the winning double red may be accompanied by some losing double reds. But if the strategy is consistently traded, and double reds are constantly checked and properly observed, then it could be a profitable strategy.

How to Perform the Double Red Strategy

The double red strategy is a short term reversal system based on price action and resistance. The trade is set up on the 5 min charts and is signaled when two bearish candles form following a test of resistance. The signals generated with this system are good for 30–60 minutes and no longer. However, using 15 minute intervals is ideal. This allows for short term falls to be taken advantage of by the strategy, and weak resistance levels are sure to hold.

Suppose a trader wishes to make a day trade on a certain asset. The first thing he needs to identify are the support and resistance levels on the weekly and daily charts. Then, he narrow his focus to five-minute charts. On the five minute charts, the trader will be playing off long term resistance lines. If none are close by, then the trader may have to look for potential short term resistance levels. When price hits the resistance level, it is time to wait for the double reds. If the second red candle closes lower than the previous candle, then the trader has the signal to buy a PUT.

Double red strategy is pretty simple to understand and easy to spot. High profits are to be made when using this strategy consistently. As for the disadvantages of this binary option trading strategy, it does not work in case of high volatility trading because support can easily happen. You also need to act very fast and understand market behavior to make the correct prediction. As with any other strategy, long periods of patience and concentration required in order to spot the signals.

Learn more strategies by watching out for more articles from our site. Meanwhile, you can check our full list of brokers to help you get started with binary options trading.