Pinocchio Binary Options Trading Strategy Binary Options 2020

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Pinocchio Strategy in Binary Options

In this article we discuss yet another trading strategy used by binary options traders. This strategy, like many strategies we have already discussed, is very reliable and highly accurate, especially for professional binary options traders. However, even if this strategy is mastered by expert traders, the concepts are pretty basic for novice binary options traders to understand. This makes the Pinocchio strategy very appropriate in some conditions when trading binary options.

This strategy is called the Pinocchio strategy. More completely, it is the Pinocchio Binary Options Trading Strategy, and is also more commonly known as the Pin Bar strategy. We’ll see why in a bit. This strategy is a and strategy for traders who are experienced in the market analysis and other related technical research. There is zero probability of false breaks when using the Pinocchio strategy.

Carlo Collodi, author of the 19th century adventure book where the strategy gets its name from, may have never thought that a binary options trading strategy will be named after his wooden, puppet main character. But the Pinocchio strategy is aptly named after the fictional character. Remember how this wooden doll who wants to be a real boy grows his nose whenever he lies? It is the same case with this strategy. Seeing a “Pinocchio” configuration in a candlestick formation found in any stock chart means we are trying to look at lie. Let’s try to see why.

Pinbar Method

A Pinocchio bar is also known as a Pin bar. Try to remember the individual candlestick formations that we have discussed in an earlier article and you will recall that a pin bar candlestick has a very small, close to having no body and a long shadow. We also know that a pin bar denotes that an asset’s price opened, rose and fell during the trade period, then eventually closed very near if not exactly at the price level at which it opened.

Now let us relate Pinocchio’s nose becoming longer every time he told a lie to what happens with a Pin bar. As the trade period progresses, the shadow of a pin bar becomes longer as the price of the asset goes in a certain direction before it actually retraces and closes near where it opened. The longer the shadow, the higher the probability that the price of the underlying asset will go the opposite way and that the initial direction was a lie.

Simply put, if there is a long upward shadow, we can analogize it with Pinocchio’s nose and say that the configuration is telling us a lie that the price will be going up in the next few periods. The price will actually be going down. Conversely, if there is a long downward shadow, Pinocchio’s nose is lying to us about a continued downward trend because this is really an indication that the asset price is looking good and is expected to go up.

Mechanics of the Strategy

The Pinocchio binary options strategy is based on the combination of three consecutive bars, usually with the pin bar in the middle of the other two. These bars that can be configured in two different ways. A Bullish Pinocchio configuration is made of three consecutive bars with the pin bar showing a long downward shadow. This usually indicates a bullish trend. When this is seen, binary options traders are ready to look at a reversal from bearish to bullish.

Conversely, a Bearish Pinocchio configuration is made of three consecutive bars with the pin bar showing a long upward shadow, indicating an imminent downtrend. Binary options traders make the appropriate purchases to rally this expected change in trend.

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To be more specific, the strategy involves purchasing a PUT option if we see the shadow is up and a CALL option if the shadow is up. The entry point varies as some traders prefer to wait for the next candle to retrace to the 50% Fibonacci level of the Pin bar and others just enter immediately after the Pin bar closes. Knowing the background of this strategy, it can be considered as a price reversal method. The logic is that the direction of a high bar shows the opposite of the price movement in the market, since a Pinocchio bar is lying to us.

How to Perform the Pinocchio Strategy

To perform the Pinocchio Binary Options Trading Strategy, you should be able to decide on the underlying asset that you are willing to trade on. Using a reputable binary options broker and a reliable charting platform, set your tools to look at candlestick formations for your specific trade periods and other necessary requirements to make a pin bar trade. This may include configuring your settings to make the candles visible in the time period selected.

The next step would be to observe the bar formations. What you are searching for is 3 consecutive bar formations; the middle one should be higher than other two. These can be upward and downward direction. While there could be a number of these kinds of formations, the best move would be to enter in the one which is 50 percent higher than the low bars around it, and opens or closes at one end. Finally, look into the pin bars. If the nose is high, it reflects the low price; so you need to enter a PUT option. Otherwise, if Pinocchio’s nose is low, then you enter a CALL option.

Strategy Limitations

There are certain limitations to the Pinocchio strategy. The first and foremost is that it is not for everyone. Experienced traders can take better advantage of this strategy and can make consistent profit. But that does not mean novices cannot master this strategy. Consistent observation of stock charts and being on the constant lookout for these formations can train a trader to master this technique.

Another big drawback of this strategy is that it requires a large stop loss. If you come close to it, then saving yourself from suffering a loss is very improbable. One of the most important things that you need to take extra care with when trading using Pinocchio is to never to trade in a single bar. Always look for the 3-bar combination. Lastly, if you earn profits on a trade, it would be wise not put the whole amount in the process again as you may tend to lose significantly if the next formation does not go your way.

Learn more trading strategies by keeping glued to our site. We also feature a list of top binary options brokers to get you started.

Pinocchio Binary Options Trading Strategy

This strategy is worked on a specific type of candle. A Pinocchio bar (aka Pin bar) had a long wick (nose) and a small body. The wick part becomes longer as a price goes in one direction and then retraces. Based on the length of the wick, the probability of the price going in the opposite direction becomes higher, proving that the original trend is false (the lie).

When you look at the longer wick, it means that the sellers (the bears or Put traders) took the price down the lowest point of the wick but the buyers (bulls or Call traders) entered the market and the price then increased. This shows on the candle as a small body and a long lower wick. This often means that the price will continue rising as this type of candle shows rejection of the previous trend. When looking at a bullish Pinocchio bar, the opposite of the above applies.

How does it work?

The simplest form of this strategy would be buying a Put on the up wick and buying a Call on the down wick, but to get better results you need to complicate the strategy a little. Combine this strategy with technical indicators and price action will give you a little more security on your signals. Add in resistance and support lines, trend lines, oversold and overbought levels, confluence and divergence and you are likely to get the right results. You would need to start by being able to identify the Pinocchio type candle and then start the homework to look at trends, ranges and so forth to see when to enter.

Tips and tricks with this strategy

This is not the simplest strategy to use as a beginner as you cannot simply trade when you see the Pin bar and if you are not experienced in gauging the market you may not be successful with your trade. There are a number of factors that can affect the trend and it is better to have clear confirmation after noting the Pinocchio bar before entering a trade. This strategy does however work well in a trending market if you only trade with the trend and in ranging markets. It is an extremely accurate and reliable strategy as the Pin bar clearly shows the behaviour of the market participants. This bar also allows you to identify false breaks in a trend and allows you to avoid the inevitable trend change indicted by the Pinocchio bar.

Pinocchio bar (pinbar in the opposite direction of the longer wick)

This strategy has a proven 70% success level with experienced traders and a double reward to risk ratio. To ensure a good trade it is recommended to watch for a number of other factors to give a good signal and not to just trade based on the Pin bar alone. This strategy is better when used for forex trading but can also be used successfully for binary option trading with some minor adaptions and the use of a few extra indicators.

Full Review of Pinocchio Binary Options Trading Strategy

Well, Geppetto, I bet you never thought a financial trading strategy will be named after your wooden doll, but here we are, talking about the “Pinocchio” strategy. Just like the lovely wooden doll had an addiction to lying, the “Pinocchio” candle is trying to lie to us every time…but with little success, because we are on to it and that’s what makes it profitable – we know it is going to lie to us.

What Is The Pinocchio Strategy And How To Use It For Binary Options

First off, let’s get familiar with this type of candle: a Pinocchio bar, also known as a Pin bar has a very small body and a long wick (or nose). Remember how Pinocchio’s nose became longer every time he told a lie? The same thing happens with the Pin bar: the wick becomes longer as price goes in one direction and then it retraces. The longer the wick, the higher the probability that price will go the opposite way and that the initial direction was a lie. This is how a bullish Pinocchio looks like:

That long lower wick means that sometimes during the “life span” of the candle, the bears (aka sellers, aka the Put guys) managed to take price to the lowest point of the wick. At that time it looked like they are in complete control. Soon after, the bulls (aka buyers, aka Call guys) came in the market and took price higher. The result of this behaviour is a long lower wick and a small body. The consequence of this behaviour is that often price will continue higher because this type of candle is a clear sign of rejection. The opposite of what I’ve just said applies for a bullish Pin bar (Pinocchio).

The strategy consists of buying a Put if the wick is up and buying a Call if the wick is down. But it gets a bit more complicated if you want better results: one way of using the strategy is how I’ve just described it and the other way is combining the Pinocchio with price action and technical indicators. Support and Resistance, trend lines, overbought and oversold levels, divergence, confluence and more will come together to give you the results you are looking for. It’s not as easy as simply looking for a Pin bar and trading in the direction it points to but the first step would be just to train your eyes to see this type of candle. Then you will take into consideration trend, ranges and all the other stuff. Okane’s video linked to this article will be of great help and will make you better understand it so I strongly recommend you watch it.

Why does the Pinocchio Strategy Suck?

Hmm…it can suck because you don’t just enter a trade after every Pin bar and some experience is required to gauge market environment. For example in a down trend, after a minor rally, if a bearish Pin (the wick is in the upper part of the candle) forms at a strong resistance level with an oscillator showing hidden bearish divergence I will take a trade faster than I can say Gepetto, but if the Pin is countertrend, I might get burned easily and although I’m not made of wood like Pinocchio, it will still hurt. So the Pinocchio strategy is not very newbie friendly even if it looks easy enough in the beginning.

Why the Pinocchio Strategy doesn’t Suck?

This one works in trending markets, assuming you only take trades in line with the trend and in ranging markets. It’s one of the most reliable strategies with an astonishing high accuracy if used correctly, because the forming of a Pin bar gives us a clear indication of how the market participants are behaving: in the first part of the candle, the bulls push price higher but the underlying weakness allows the bears to come back strong and close it near the opening price or even lower. This is of course an example for a bearish Pinocchio bar and the opposite applies for a bullish Pin. Well, my friends, did you ever got caught in a false breakout? I know I did. No more: the Pinocchio strategy also helps us identify a false break of a trend line, a support or resistance level or a false breakout from a range. Let’s assume we are watching the one hour candles and price is breaking a resistance level. Even if in the first half an hour or so, price is strongly advancing above resistance, wait for the candle to close because if the candle will become a Pinocchio by the end of the hour, it will more often than not come down some more in the next candles. By waiting to see if the bar becomes a Pinocchio, you just avoided the false break and now you have a clear indication what the market wants to do. Nice going, Pinocchio!

Wrapping It Up

Pinocchio is one of my favourite Forex trading strategies and from my experience with it I can tell you it has a 70% win rate with a 1:2 Risk:Reward ratio (sometimes I hold on to the trade for 1:3 R:R). However, it is better to see confluence of several factors when trading this one, not just the Pinocchio bar. In my book, this strategy definitely does not suck, but always be aware of the other factors that drive the markets, don’t just follow it blindly. And always be aware that I have used it mainly for Forex, not Binary Options. I am not saying it doesn’t work for binaries, just saying that you have to adapt it because you can’t use a stop loss and you cannot exit the trade early if it doesn’t go your way (well, with some platforms you can). Also there’s the expiry time problem and this is another situation where your trading “prowess” comes in play. Choose wisely, according to market conditions, of course.

For any Questions about Pinocchio Strategy visit our forum here.

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