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Setups of the Price Action system are divided in primary and secondary ones. It is believed that secondary setups are weaker than the primary ones, and signals that they send appear less frequently and are justifying themselves less often. Railways setup is the secondary pattern, but if one knows how to use it for options purchasing and what factors affect it, the indicator can generate good profit.
This article will discuss in details the Railway pattern and its application for efficient trading. Railways Setup consists of two oppositely directed candles which have a greater size compared to one of the last bars in a chart. They warn about reversal of the trend or beginning of correction. A scenario signaling the beginning of an upward turn has the opposite criteria — the first candlestick is bearish, and the second one is bullish:. That is, if the first bar is formed by points and the second one by 69 points, such formation is difficult to regard as the railways setup.
The two big candles indicate high volatility of an asset at the period of their formation. Such level of volatility can be caused by several factors:. Most of the impulses are accompanied by a strong pullback, but if it is almost the same as the impulse itself, then we can talk about the change of the market state.
The second candle is formed when these orders activate, and if the candle is big enough, then market participants react to it and enter the market, thereby strengthening the reversal. The Railways Setup is rarely formed on the chart in its pure form. Unlike other models of Price Action system, trading based on this setup is possible only when it is clearly distinguished on the chart. When the shape of the setup is not fully up to its description and there are doubts, it is best to ignore the signal and rely on it only when it is clearly and accurately formed, as demonstrated by the example below:.
An important criterion is the presence of trend before the figure, because the figure must be formed on high or low of it. When the railways appear on a sideways trend or during the correction, such signals should be ignored. Moreover, the pattern must have a support in the form of a horizontal level. The example below shows that the pattern does have such support:.
Despite the fact that the pullback on the chart was quite strong, this is a rare case and usually the reverse movement does not last so long.
It is better to buy an option at the breakout of the pattern extremums. If the pattern is bearish, then it is wise to wait until the price goes below the minimum of either first or second candle:. The movement rarely has a long-term nature due to the fact that the biggest portion of the impulse is spent during the second candle of the setup.
Hence, the expiration should be set for a short period — one to five candles. More accurate period of closing the contract depends on the strength of the pattern, which can be measured by several criteria:. If the setup meets all the criteria, the expiration time can be set to equivalent of 5 bars on the chart.
In contrast, when there are no strengthening factors, the closing of the option should be set to candles. Although railways is the secondary pattern in Price Action system, on some occasions it gives high quality signals that generate good profit on binary options. Distinguishing strong setups among the weak ones takes time and requires practice, but learning to do so will help the traders to get better profits.
It is important that the pattern is clearly seen and stands out on the chart. And Yulanta Business Ltd, with registration number , address: Comece a ganhar dinheiro Registar-se. Pivot Point Reversal pattern.