Hello this is Mark from Tradinformed.com and welcome to this video on, A simple 15 minute
binary option candlestick trading strategy. This really is a simple strategy that we are
going to look at in this video, it is a reversal type strategy and what we're looking for is
3 consecutive either lower, 3 consecutive lower, or 3 consecutive higher, closes. Each of them with a minimum
body size and then the fourth candle to a Doji candle with a maximum body size.
I've got an example here of a successful trade, we have one, two, three candles, each having
lower closes. And then we have our Doji with a very small candle body there. And we have
a strong move upwards. For the trading, the binary option er, type that we're using
here is Higher or Lower than. So we would take a 15 minute position, which would be
closed at the end of this candle. Which should be, at 15:45 on this particular day. So we'd
have entered here, at the close of this candle, and we'd have closed it here, at the end of
this candle. If I scroll on a little bit, I've got an example
of a strat, of a trade that wasn't successful. Here we are looking for a short trade and
we had 3 consecutive upward closes followed by a Doji with a very small body again. However,
what happened at this particular one, is that the subsequent candle pushed up beyond this
one before turning lower, so this trade would've been a loss. If I stroll on, scroll on, again,
I have an example of a short trade that would've been profitable. So again we have 3, 1, 2,
3 nice strong candles in an upward direction and the market stalled and got stuck at this
particular point and then goes lower. Although I'm not interested in the rest of this going
lower, I'm just interest in the next candle. So we would have entered at the close of this
candle and closed at the end of this candle. Well it's a nice theory, that I'm advocating
here of this being a useful trading strategy that could be profitable but how do we find
out whether or not it would have been profitable. Which is the only we can actually see if a
trading strategy is any good or not and this is to backtest it.
I'm going to use Microsoft Excel. I've loaded in EUR/USD on the 15 minute timeframe and I've
imported from April 2010 to April 2014. So I've got about 4 years worth of data 100,000
different time periods. I've got a pretty simple spreadsheet here that is going to look
at whether or not the trade should be entered or not and if so, whether or not the trade
is profitable. So the first thing that I am going to look
at here is our entry criteria. And we're going to use for this we're going to use the most
useful, in my opinion, the most useful Excel function. Which is the IF Statement and I'm
going to call it IF AND. I'm going to set a series of logical tests
to, if the trade, particular timeframe meets, the time period rather, meets all those criteria,
then we enter the trade. The first thing I'm going to do is use the Absolute function ABS,
I'm going to open the brackets, we'll take the opening price minus the closing price.
This is going to tell us (not close it yet!) this is going to tell us how big the body is of the candlestick.
Then I'm going to put lower than. I'm going to use an absolute reference here, use this
cell here, press F4 to make it an absolute reference, which means that when this formula
is copied down we still still be able to alter it by using this cell.
Now, I'm going to put in a comma. The next thing I'm going to look at is the 3 consecutive
moves lower which is what we'll need before we have enter a long trade. So the first one
of these, we'll use the closing prices, which isn't strictly the candlestick body, however
it does allow us to take account for what the market gap is. So because obviously that
can happen, happens most often in between candles if a piece of news or event risk is
released. So in this case, I'm going to make it greater than, I'm going to use this reference
cell here. Press F4 again, comma. Copy this 2 more times. 65 to 64. 3 and 4.
And there we have, can see that it's correctly applied, highlighted, the 3 preceding, bars
that we wanted it to do. If it meets all these criteria, I want it to enter the text, "long",
if not then to enter nothing. OK. so, we're almost there, we want to just
add one thing and this is, I want to only take trades that occur on the same day. The
reason I want to do this is in particular is although, the forex market is 24 hours
a day, really I wouldn't mind if a trade actually, took place at midnight, however there is a
risk that a trade could take place following the weekend and I don't want it to count for
a weekend or market closure gap. And I'll make sure it's the same day.
And now I'm going to do the same for our short trades. I'll do IF AND. Enter the absolute
again, closing price, and it has to be lower than and make it an absolute reference cell.
And will take, the preceding bar and making sure it is greater than the maximum or the
minimum size of the candles. Now I'm going to take that one. And copy it across, 5, 64,
64, 63. Make sure is the same as this. And if so then I'm going to enter the market short.
OK. So I've copied these down by pressing, double-c;licking on the little square, on
the bottom right hand corner of the cell. Do the same for both of these. I'm going to
shift these up here, and we'll just take and use the Cut. I just left them there for convenience.
Put them back up here, with the rest of my results data. Press calculate. And the spreadsheets
going to work out for us, whether or not this trading strategy would've been successful
or profitably traded during this time period. So we can see here, from this data, that we
have 296 winning trades and 190 losing trades, giving us a winning percentage of 60.9%. Assuming
that the 80% payout we would be profitable, we would be making about 4% profit on this
particular trading strategy. Over this particular time period. If we wanted to trade it as a
normal trading strategy, in other words if we were to enter, pay the spread and close
in exactly the same time after that, after the next, at the end of the next 15 minute
period. We can see here that the trading strategy would've been profitable, we would have shown
a profit 227 pips and a profit factor, which is the absolute number of winning pips divided
by losing pips of 1.15. Overall it seems to me that this trading strategy is probably
better traded using binary options, rather than as a normal trading strategy. We're not
giving the trades very much time to move in our favour, so the spread is going to take
a lot of our profits.Even if the trading strategy, as it shows here has got a higher than 50%
chance of winning. So what I've done here, below, is I've shown, I've broken it down
into 2 hour time periods. We could break it down into to smaller or in fact larger time
periods if we want. I wanted to get a feel though for when this particular trading strategy
is most profitable. Around the 55% mark is what we want to see, if this trading strategy
is profitable and we can see that most of these bars are showing it's profitable. The
ones that it isn't. It's possible there may be some reasons, erm. Of the times here, I'm
using are GMT London time so there does tend to be quite a bit of news released, maybe
market changing economic news out at about this time. Which could mean that the strategy
is less profitable around this time.Around 2 o'clock, again this could US market news
coming out, although it may just be a random feature, don't know. We'd need more data to
find out. However, overall, after trading for 4 years and getting almost 500 trades,
60.9% is quite encouraging. And is a good start for a trading strategy if you ask me,
there needs to be 55% or thereabouts or more to be profitable. So what could you next do,
to improve this trading strategy. Well we've already programmed in a couple of variables.
We could make the Doji body smaller, we could make the minimum previous candles size larger
or smaller. We can look at the number or preceding candles, maybe we want to have a stronger
trend, maybe we want to see 4 candles moving in the direction, before looking at a reversal.
Or maybe we want to see fewer, maybe we only want to see 2 candles or 1 or 2 candles but
very big and strong candles. Maybe we want to see a candle moving 10 pips before we look
at, before we enter it the other direction. We could also look at the colour of the body,
most of these erm, Dojis don't end on exactly the same number of pips. So maybe we can have
a green or a red Doji would be more or less profitable. We can easily test to find out.
We haven't look at wicks. We haven't looked at the number of, at whether or not if we
have a wick in the direction of the trade. Or in fact the previous direction, whether
or not this could affect the strategies profitability. Another thing that we could easily test using
Excel. Is the momentum. Whether or not, the current price. Is greater than the price 50
periods, or a 150, or 250 periods ago. What is the previous trend? How strong is the previous
trend? All of these things we can easily backtest, a try to refine the trading strategy without
over-optimising it and trying to refine the strategy. OK, so I hope you found this useful.
As a, an example of a binary option. A simple binary option strategy that can be amended,
improved, or worked upon to make it more effective. If you'd like more information about using
Excel to backtest trading strategies. And about the financial markets in general, please
go to www.tradinformed.com.