I bet you've heard of many trading patterns named after animals such as bats and butterflies. But, have you heard of the pig's hoof pattern? I came across this unique trading pattern for the first time in one of the online trading forums. After searching more about it, I tried it out and found it a good one for all types of traders.
In this guide, you'll learn more about the pig's hoof pattern and how to use it for trading on IQ Option.
- 1 Overview of the Pig's Hoof pattern
- 2 How to trade using the Pig's Hoof pattern on IQ Option
- 3 Advantage of trading using the pig's hoof pattern on IQ Option
Overview of the Pig's Hoof pattern
The Pig's Hoof trading pattern looks quite similar to the hoof of a pig. It occurs when the price hits a support or resistance reverses and then hits the support or resistance again before finally reversing and taking the opposite trend. For a better picture, look at the images below.
But that's not all, the pig's hoof pattern will only form when there's RSI divergence. That is, if prices are rising, the RSI chart is dropping and vise versa.
In both images, you'll notice that the price hits the support/resistance level then temporarily reverses before moving to the support/resistance. Finally, it reverses adopting a strong reverse trend.
However, as the prices bounced to support/resistance for the second time, the RSI didn't move in the same direction. This is called RSI divergence.
How to trade using the Pig's Hoof pattern on IQ Option
Once you've logged into your IQ Option trading account, set up your Japanese candles chart. Let your candles have 1 minute time intervals.
Next, set up the RSI indicator by clicking on the indicators feature. Next, select momentum and finally set it up by selecting Relative Strength Index.
3 key elements in implementing the Pig's Hoof pattern
When trading using the pig's hoof pattern, you'll be looking out for three things. The first is that the price tends to bounce off a support or resistance level. The second thing is that special candles are forming on the support or resistance indicating a possible reversal. Finally, the RSI indicator diverges. That is, as prices hit the support/resistance and bounce back, the RSI line doesn't do the same. You'll notice the RSI forming a wave that looks like a pig's hoof.
Enter buy positions when RSI divergence occurs during a downtrend. Your trades should not last longer than 5 minutes if you're using 1-minute candles.
Enter into a sell position when RSI divergence occurs during an uptrend.
Easy money management method you can use alongside this strategy
Money management forms an integral part of any trading strategy. Here's a simple money management method you can use to make money using compounding.
The first thing to remember is never to trade more than 3% of your total account balance in a single transaction. Let's say you have $100 in your account. This means the maximum amount to invest in your first trade is $3.
Now, instead of trading $3 on every trade, this money management strategy requires, that you invest your total earnings on the next trade. Take a look at the table below.
Factoring in Trading psychology
Trading options can be psychologically demanding. So you must be prepared by deciding how much pressure you can take.
Consider the example above. What if you lost all 3 trades? That means your account balance will have fallen to $91. Would you continue and try to recover your $9?
Now, what if all 3 trades were winners? Would you continue trading in hope that you'll make more money?
Being prepared psychologically means deciding when to stop trading for the day. That is whether you lose or make a profit. Set the maximum number of trades you'll execute in a single day. Then stick to this plan.
Advantage of trading using the pig's hoof pattern on IQ Option
The major advantage of trading using the pig's hoof pattern is that it's extremely effective. It will only work when the aforementioned 3 conditions are met – special candles appear on support/resistance, there's a trend and RSI divergence occurs.
It works very well when markets are trending, with several reversals occurring over a period of time.
Coupled with the money management strategy I've shared with you, you'll only need a few trades per day to reach your daily profit target.
Disadvantages of the pig's hoof trading pattern
This strategy works well when trading short interval candles. For most traders, 1-minute time frames are very challenging to trade with. You can still use this pattern to trade longer time frames. The problem is that it will take a lot of patience for this pattern to present itself.
Now that you've earned how to trade using the pig's hoof pattern, try it out on your IQ Option practice account. Share your results in the comments section below.
GENERAL RISK WARNING
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