We will discuss our new colors trading strategy. Traders have to be good observers. They have to be able to catch the signals to open transactions on time. There exist strategies that help them in this task. Today, I am going to present a trading method where no additional indicators are needed. Only the price chart and a good eye.
What are the basics of colors trading strategy
The candlesticks on the price chart appear in different colors. You will notice green and red bars. A green candle means that the opening price lies below the closing price. And a red candle represents a situation where the opening price is higher than the closing price.
A series of green candles tell us about the uptrend in the market. There are, however, some red candles along the way. The price is in constant motion and it is not going in one direction without any throwbacks. Similarly, during the downtrend, you will see some green candles although the majority of the bars will be red.
Colors trading strategy explained
A strategy that is based on the colors of the candles uses the fact, that the series of one candle's colors do not continue indefinitely. So, after a specific amount of green candles, you will open a trade for the price decrease. If you want to open a transaction for the price increase, wait for some subsequent red candles.
Set the chart timeframe for 5 minutes. You will open a position for a duration of 5 minutes as well. Digital options fit best for this strategy. Choose the asset from the most commonly used currency pairs for example GBPUSD, EURUSD, NZDUSD, AUDUSD, USDCAD, or USDAJPY.
Entering a long trade with colors trading strategy
All you need to do is to observe the chart thoroughly. Wait for the series of red candles. We will enter after the 4. red candle. You can utilize longer series when testing a strategy.
You open a transaction immediately when the 5. candle begins to form. It can happen that that candle will be red. This means a loss and you can enter the trade again at the beginning of the next candle.
Increase the investment amount according to the Martingale money management. Consider the table below.
Below, there is an exemplary chart for the eurodollar. In the first situation, I opened the position at the 5. candle and I lost. At the very beginning of the following candle, I entered again, with the amount of 3. this time I won 1.61 net profit. After the next series of 4 red candles, I entered again and won 0.87.
My recommendation is to stop trading when the 6. transaction does not bring you profit.
Opening a short position with colors trading strategy
To open a short transaction there has to appear a series of 4 green candles. You enter at the opening of the 5. candle. If it is red, you win. If it is green, you lose and try again at the next candle increasing the amount of money you invest.
Let's look at the example. I entered a short position after the 4. green candle. I lost. For the next candle, I have increased the amount to 3. And lost again. The third time I have invested 9. Unfortunately, it was a green candle. Only the 5. candle has brought me profit. It was 30.47.
Colors trading strategy described in today's article is not very complicated. It requires only you to look at the colors of the candles. Wait for the series of candles in the same color and enter the trade. I have used 4 candles in the series. Nevertheless, you can try with another number of bars.
You can also add an extra filter to the strategy. Use, for example, the Exponential Moving Average with a period of 200. Search for the opportunities to open long trade when the price is over the EMA200 and to open a short transaction when the price goes below the indicator line.
There is always risk involved in trading. Especially when using the Martingale money management. By increasing the investment amount every time you enter the trade, you expose yourself to greater losses.
Test the strategy in the demo account. You get it totally for free on IQ Option. It is supplied with virtual cash and you can stay there until you feel confident enough to invest real money. Of course, don't forget to share your thoughts on the colors trading strategy in the comments below the article.
General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose
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