Pinocchio strategy

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Pinocchio Strategy- Binary Options Trading

I don’t think you ever thought that a trading strategy could have the name of a rigid wooden toy, did you? But, the Pinocchio strategy is, in this case, a financial strategy that could earn you lots of cash. Back to the wooden doll, Pinocchio keeps lying to us- you might think the nose is longer than it actually is. In the same way, Pinocchio shows us bars with candles that try lying to every trader. The strategy here is to analyze and find it out. This enables investors to play safe.

What is the Pinocchio Strategy?

The first thing we’d need to know is what a Pinocchio bar is. It’s known as a pin bar due to its small body and a short nose. The bar looks like a candle that has a tip at the top- similar to the wick. As the price goes up, the wick gets longer in a single direction before retracing. If the wick is long, then; there is a probability that the price will follow the opposite direction. This will prove that the initial course was a lie- hence the ‘Pinocchio’ perspective. So, a bullish Pinocchio looks like an inverted lighted candle or pin bar.

The bearish candle has a short upper wick, a candle body in the middle and then a long lower wick. The extended lower wick shows that there was a time during the candle’s ‘lifespan’ when the bears took the price of binaries to the lowest point. Then, later, the bulls entered the market and took the price a little higher. So, Pinocchio has a long lower wick and a small body. This projects an increase in price due to rejection.

Application of the Pinocchio strategy

When using the Pinocchio strategy, you need to buy PUT option when the wick is up, and the CALL if it is down. Well, it gets a little complicated when you want finer analysis- you should combine the Pinocchio strategy with price action as well as other technical indicators. All the financial trading strategies combine to deliver good results.

When used correctly, Pinocchio binary options strategy can have high accuracy. The first part shows bulls pushing the price higher. Then, the bears come strongly and make the price lower.
It ends up in a bearish Pinocchio bar. The opposite is a bullish pin bar.

Pinocchio strategy sniffs for false breakouts

When you are using the Pinocchio strategy, you can easily identify a false price break out of the trend line. You can also find support and resistance price levels. For instance, when watching an hour’s candle, if the price breaks a resistance level, and the price rises above resistance in half an hour, it’s wise to wait for the candle to close. This is because if it happens to become a Pinocchio bar, then it’s likely that consequent candles will follow suit. You see, by waiting to see if the wick becomes a Pinocchio, you can avoid a false break out and understand the trends in the market.

Pinocchio Strategy – Not a Doll, But a Great Tool

Pinocchio strategy is famously named after a Ghepetto’s wooden doll from story for children. When Pinocchio would tell a lie his nose would grow. Same happens on the markets, when certain asset has big difference between highest and lowest price in the observed trading period (usually in a day).

Pinocchio strategy is kind of trend trading that includes trading using charts. Charts consist of Pinocchio candles or Pinocchio bars, also referred to as pin bars. Other names used are candles and candle sticks. Before explaining this trading strategy into detail we need to define some terms:

High Price: The top of the Pinocchio’s nose (pin, candle) is the highest price the asset has reached during its open time.

Low Price: The bottom of the pin (candle) is the lowest price the asset has reached during the time it was open.

Open Price: The price the pin bar (candle) opened at. For a bullish pin this will be the bottom of the pin body, for a bearish pin the open price will be the top of the body.

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Close Price: The closing price of the pin bar (candle). A bearish candle’s close will be the bottom of the body and bullish candle’s price will the top of the candle body.

Pin body (candle body) is the thick part of the pin that represents the distance between the open and close price. If the close is higher than the open then the pin closed bullish and will show a bullish pin body. If the candle closed lower than its open it’s a bearish pin and will show a bearish body. The thicker the body the more buying or selling pressure there was in that candle’s open period.

Pin range: The pin range is the distance between the pin high and the pin low. Large pin ranges indicate high volatility. Usually pins with large ranges are generated from large news, or economic events.

Upper candle wick: The upper candle wick is the line that produces from the top of the candle body and represents the distance between the candle high and body top.

Lower candle wick: The lower candle wick produces from the lower end of the body and represents the distance between the low price and the candle body bottom.

Bearish pin – the long wick is in the upper part of the candle.

Bullish pin – the long wick is in the lower part of the candle.

You can take a look at the picture below that illustrates terms stated above.

Pinocchio strategy is mostly used by experienced traders

Pinocchio strategy is all about looking at the charts and recognizing trends and more importantly recognizing when will trend change. When Pinocchio lies his nose becomes longer, same happens on the market, when we see wick becoming longer and longer we know market is lying to us and trend will change. The longer the wick, the higher the probability that price will go the opposite way and that the initial direction was a lie. So when you see long upper wick make sure you sell. Opposite when you see a long lower wick make sure you buy.

When it comes to Pinocchio trading strategy you must be careful, it is after all strategy better used by experienced traders rather than beginners. You don’t enter a trade after every pin bar, you must be skilled enough to recognize which pin heralds trend change. 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 it is wise to make a trade, but if the pin is countertrend, you will lose your investment.

Pinocchio is one of favorite and most used trading strategies and it usually yield great results. More experienced traders can get as high as 70% win rate. Make sure you gain some experience in trading before you start using Pinocchio and always remember it is better not to rely on a single strategy, make sure you are aware of other factors that drive the markets.

The Pinocchio Trading Strategy

The Pinocchio binary options trading strategy is famous for telling lies about the movement of the market. The Pinocchio or Pin bar is a candle bar with a really small body and a long wick. When the price of an asset starts moving in one direction, the wick of the candle gets longer, which is an indication that the market will likely move in the opposite direction, and a trader trades against it. The Pinocchio helps to reveal the behavior of the buyers and sellers in a market, and this can be exploited to make huge gains, though it is not always reliable.

When a trader is using a Pinocchio trading strategy, the trader places a CALL when the wick is short and places a PUT when the wick is long.

The Pinocchio provides the best results when combined with other trading tools such as technical indicators like trend lines, confluence, divergence, overbought and oversold levels, Price Action, and so on.

Merits of the Pinocchio Strategy

The Pinocchio strategy helps traders to determine the real movement of a trend. It also helps to identify false breakouts, and support or resistance levels that will change during trading. If a trader could patiently wait out a trade to see if it becomes a Pinocchio, the trader has a better chance of winning on the trade as the Pinocchio reveals the true movement of the market.

Demerits of the Pinocchio Strategy

The Pin bar or Pinocchio is not advisable for the new trader as it requires some level of experience to read the momentum of the market accurately.

If you wish to trade with the Pinocchio strategy, the most crucial success factor is timing. Whenever the Pinocchio candlestick appears on the charts, place your trade immediately. Care should, however, be taken when using the strategy, as it is not sufficient in itself as a guarantee for winning trades. Instead, it should be used with other factors that could impact the price of the asset. Make sure to also limit your investment to an amount that won’t hurt your account, in case the strategy backfires. When used correctly, the Pinocchio trading strategy can give you up to 70 percent profit on investments, but it can also lead to a loss of investment if the timing is not right.

This article may also be interesting: Trend Trading Strategy.

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