Over the course of financial market existence, traders have devised numerous methods to profit from changes in asset prices. Among these, trading in the direction of the prevailing trend is widely popular. Additionally, some specialists engage in trades based on corrections and reversals of the ongoing trend. Finally, a distinct group of traders exclusively operates within the price channel. In this approach, profits can be earned not only from rebounds off the main support and resistance lines but also from breakthroughs.
Typically, the price extends beyond the channel boundaries when the current trend undergoes a change or strengthens. However, capitalizing on such a signal requires determining whether the breakout of the price channel is genuine or merely a false breakout.
To address this challenge, the “Breakthrough” strategy offers a solution, and the intricacies of its application will be detailed in this material.
How to set up parameters for trading?
Setting up the trading terminal and indicator parameters is a crucial step in implementing the Breakthrough strategy. While the primary guideline in this approach revolves around the price channel, determining its boundaries manually can be challenging for novice traders. Fortunately, the Breakthrough strategy streamlines this process, particularly with the use of the Envelope indicator, readily available in the standard tools of the Pocket Option terminal.
To add the Envelope indicator to your workspace, you can do so effortlessly with a single click. This indicator will effectively define the boundaries of the price channel.
An additional tool in this strategy is the RSI (Relative Strength Index), employed to gauge the strength and potential of the current price movement. This is instrumental in distinguishing between a false breakout and a legitimate breakthrough of the price channel, indicating a sustained movement in the given direction.
Optimal chart settings involve using Japanese candlesticks with a time frame of H1. While this might not be the fastest strategy for binary options, it helps mitigate losses attributed to market noise.
Selecting a volatile asset is essential for this strategy. Opting for a volatile asset allows for more decisive breakouts of the main lines, without immediately succumbing to sideways movement or, worse, a retracement back into the channel.
For the Envelope indicator, set the parameters to a period of 14 and a deviation of 0.2. As for the RSI, maintain a period of 14 to effectively align with the Breakthrough strategy.
The essence of the “Breakthrough” strategy
A buying opportunity for an option arises when there is a decisive breach of one of the Envelope boundaries. Importantly, this breach must be confirmed, meaning that a candle crossing one of the lines of the price channel must conclusively close outside it.
Confirmation for initiating a transaction is provided by a signal from the RSI (Relative Strength Index).
Purchase a CALL contract when the upper Envelope line is breached, and the moving average signal of the oscillator is above the 50 level and trending upwards.
Purchase a PUT option when the lower boundary of the price channel is breached, and the RSI (Relative Strength Index) is below the 50 level and trending downward. This combination of signals provides a basis for making informed decisions in executing a PUT option trade.
The recommended expiration period for the Breakthrough strategy is 2-3 hours.
Based on practical experience, this strategy yields clear signals in over 80% of cases. When combined with adherence to effective money management rules, the Breakthrough strategy has the potential to deliver excellent results for traders.
