The Double Red Strategy for Binary Options

The Double Red trading strategy for binary options is based on scalping principles and involves high risk. It is designed for short-term trading and offers the potential to earn substantial profits quickly, but it requires considerable experience.

In this article, we will explore how the Double Red strategy works. It does not require additional indicators, but it is highly aggressive and suitable only for experienced investors. Use it only after practicing with trading simulators.

Lesson Topics:

1. How does the Double Red strategy work?

2. The anatomy of a Japanese candlestick

3. Scalping in binary options trading

4. Key features of the Double Red strategy

5. Trading binary options with the Double Red strategy

How Does the Double Red Strategy Work?

Before trading binary options, every trader must learn how to use Japanese candlesticks. They are used in many popular strategies. Every closing price, opening price, high, and low can influence trading decisions, which is why understanding this chart type is essential for successful trading.

The Double Red strategy for binary options requires the ability to read a chart. It is designed for bearish trading—in other words, trading PUT options. The investor purchases a LOWER option to profit from a decline in the underlying asset’s price.

Despite the strategy’s apparent simplicity, using it successfully requires a thorough understanding of Japanese candlesticks. Otherwise, this method can lead to substantial losses, especially if you have limited experience.

The Anatomy of a Japanese Candlestick

Japanese candlestick charts display price lows and highs within a specific period. They allow you to quickly assess market sentiment on a particular timeframe.

Bullish and bearish candlesticks

Each candlestick consists of the following components:

• Body — the distance between the closing and opening prices. If the closing price is higher than the opening price during a given period, the body is green. Otherwise, it is red.

• Wick (shadow) — the lines extending to the highest and lowest prices reached by the asset during that period.

There is also a measurement referred to as the candlestick’s body height, calculated as the difference between the highest and lowest prices during a given period. For example, if the high is 60 and the low is 20, the candlestick’s height is 40. Remember that the extremes do not necessarily coincide with the opening and closing prices, as prices can fluctuate throughout the period.

Scalping in Binary Options Trading

The Double Red strategy is used to trade short-term bearish price movements. Traders typically choose a short timeframe of up to a few minutes. This trading method is called scalping. Its short-term nature makes it relatively risky and requires experience. Fortunately, by studying candlesticks carefully, anyone can learn to use it to make money.

If you are just beginning your journey into binary options, scalping could lead to repeated losses. Do not risk real money immediately. Start by opening a demo account with Pocket Option or another trading platform to practice with virtual funds. This allows you to understand the finer points of the Double Red strategy without risking real money, which you can later deposit for live trading.

The term “scalping” is often given a negative connotation, but this is misleading. In trading, it can refer to two different practices, depending on their legitimacy. Legitimate scalping is a method of profiting from small, short-term price movements. Alternatively, the term is sometimes used to describe a fraudulent form of market manipulation. The Double Red strategy for binary options is based on the first type and is entirely legal.

Scalping in binary options involves very short expiration periods of up to 15 minutes. Professional investors can quickly learn to use Double Red because its rules are straightforward.

By the way: A similar method can be used when the underlying asset’s price is rising. This strategy is called “Double Greens.”

Key Features of the Double Red Strategy

As the name suggests, Double Red is used when two consecutive red candlesticks appear on the chart—a “double red.” The second candle must close below the bottom of the first candle’s lower wick. This indicates a downward trend, with the subsequent price moving below the previous one.

This is NOT a Double Red setup

The image above does NOT show a Double Red setup. The first candle’s wick extends below the second candle’s closing price. It must be above that closing price to meet the Double Red strategy’s requirements. A PUT option might still generate a profit in this situation, but not consistently, so this candlestick configuration does not qualify for the strategy.

An example of a Double Red setup

In the image above, the second candle’s closing price is below the bottom of the first candle’s lower wick. This configuration qualifies as a Double Red setup. If you identify it, purchase a PUT option with an expiration of up to 15 minutes. You can earn a return of up to 95% on Pocket Option, although conditions on other platforms may differ. Remember this pattern so you can recognize an opportunity to enter a trade when it appears.

When using Double Red, you may encounter the following situation:

A losing Double Red setup followed by a price increase

This is also a Double Red setup because the second candle’s closing price is still below the bottom of the first candle’s lower wick. However, this trade will result in a loss. Unfortunately, like any other trading strategy, Double Red does not generate profits 100% of the time. This is normal—simply follow the system to aim for a positive overall result.

A successful Double Red setup followed by a price decline

The image above shows a winning Double Red trade. By purchasing an option during the third candle, you profit because it closes lower than the second candle. Winning Double Red setups can be accompanied by losing trades. If you consistently follow the strategy and read the chart correctly, Double Red will ultimately generate a profit.

Trading Binary Options with the Double Red Strategy

The Double Red strategy is traded on a five-minute chart. Two bearish candlesticks provide the signal to purchase a contract. The best timeframe for this strategy is 15 minutes, allowing you to profit from short-term declines.

Suppose an investor plans to enter a trade using Double Red. First, they need to identify support and resistance levels on the weekly and daily charts. Next, they should focus on the five-minute chart and look for those longer-term resistance levels. If none are present, they should use short-term levels instead.

When the asset’s price reaches a resistance level, it is time to wait for a Double Red setup. If the second red candle closes below the previous one, this provides a signal to purchase a PUT option.

Follow these steps to purchase an option using the Double Red strategy:

1. Choose a suitable underlying asset. Find an instrument with clearly identifiable support and resistance lines.

2. Identify a resistance level.

3. Wait for a Double Red setup to form. The second candle’s closing price must be below the bottom of the first candle’s lower wick.

4. Once the signal appears, purchase a PUT option. The trade’s expiration period should not exceed 15 minutes.

After spending some time practicing the strategy, you will be able to identify entry signals more easily. Follow the steps above to learn how to generate substantial profits.

The main drawback of Double Red is that it performs poorly in highly volatile markets. The strategy also requires an understanding of market behavior and the ability to make quick decisions.

The key to success with Double Red is to avoid positions that put more than 2% of your account balance at risk.

Summary

Scalping — a trading style involving rapid trades.

Japanese candlestick chart — a type of interval chart that displays price lows and highs within a specified period.