In options trading, experienced traders often use Pullback candlesticks as a sign of a good entry point to increase the probability of winning. So what is a Pullback candlestick? What are its characteristics? Why can we treat it as a sign to open options? We will find those answers in this article.
What is Pullback candlestick?
Pullback is a temporary correction of price in an ongoing trend. But when this correction is packed in one candlestick, that candlestick is called Pullback Candlestick.
To learn more detail, just imagine the prices is in a downtrend. Suddenly, a green candlestick adjusts upward. But the higher it increases, the stronger the selling pressure is, which makes the price to keep going down. The candlestick closes with the long tail pointing up and the body pointing down. The shape of this candlestick gives us the feeling it tries to increase but that’s in vain.
How to identify Pullback candlestick
Pullback candlestick has a small body and long tail. At the same time, the candlestick’s tail is opposite to the trend of the market. In specific, Pullback has a tail pointing upwards and a body pointing downwards in a downtrend. In contrast, Pullback has a tail pointing down and a body pointing up in an uptrend. For example:
– In a downtrend, Pullback candlestick appears (head is down, tail is up).
– In an uptrend, Pullback candlestick appears (head is up and tail is down).
Trading options with Pullback candlestick at Olymp Trade
This is a strategy to trade following the candlesticks’ color at Olymp Trade. The way to open options would be:
– When the market goes down (Downtrend), there is a Pullback candlestick => Bet the next candlestick red (open a Down option).
– On the contrary, when the market goes up (Uptrend), there is a pullback candlestick => Bet the next candlestick green (Open an Up option).
Note: This is an article about Pullback candlestick, its meaning and how to identify this type of candlestick. It is not recommended to only use this candlestick to trade at Olymp Trade. You can add a few indicators (for example, SMA30, Support/Resistance, etc) to increase the winning probability when opening options.