Full Review of the Teodosi Simple System for Binary Options Trading
Don’t worry I’m not talking about Theodosius the Great, so a Roman invasion is not imminent. Teodosi is the creator of this, as he calls it himself, very simple forex strategy for trading GBP/JPY. Even though he isn’t THE Theodosius the Great, his simple strategy surely seems great. According to himself, he has been profitable using this system, making money every week. Does it work for BO? Yes! In this review I’m going to show you how you can use this strategy for Binary Options and whether it’s possible to use it to trade other currency pairs than the suggested GBP/JPY. If you want to read what forex traders think of Teodosi’s system and how they have evolved it so far, you can find their comments here at forex-strategies-revealed.
How does Teodosi’s Simple Strategy Work?
The idea here is to pinpoint overbought and oversold positions in the market using Stochastic (5, 3, 3) and RSI (7). For entry, Teodosi uses the fastest and most accurate indicator there is; the Candlesticks themselves! First you need to look at the trend on the H2 chart, in case of an uptrend we simply wait for Stochastic and RSI to become overbought, meaning both of the indicators should cross above level 75 or at least be close to it. Then you’ll have to wait for a bearish candle to close at least at the middle of the last bullish candle before you get to enter a put option. If this bearish candle is less than 50% down the previous bullish candle, you’ll have to wait for another bearish candle to close. Measure again to see if the two bearish candles can together make a length that can stretch all the way down to the middle of the bullish candle or not. For call options, the reverse method is valid. In a downtrend we wait for an oversold area, level 25 for both indicators. A bullish candle must close at least halfway up the previous bearish candle, this setup qualifies taking a call option.
Make sure RSI and Stochastic are near the oversold level (25). Wait for a bullish candle to close. Measure its height, if it’s bigger than the previous bearish candle or at least 50% of its height you will take a Call Option.
Make sure RSI and Stochastic are near overbought level (75). Wait for a bearish candle to close.
Measure its height, if it’s bigger than the previous bullish candle or at least 50% of its height you will take a Put Option.
This strategy being originally intended for trading forex has no rules for choosing expiry. However, by looking at the volatility of the market and drawing support and resistance lines on various time frames you can approximate the necessary expiry needed. RSI rarely touches overbought/oversold levels more than once a day at such a high time frame. Therefore, as some of the traders in the comments have suggested, you can use level 70 and 30 for RSI and keep the 75 and 25 for the Stochastic Oscillator. If you lower the levels, verify that RSI at least touches 70/30 before you consider that area being oversold/overbought. I’ve also found out that this strategy works best in a ranging market. Of course you can use it in trending markets too but I strongly advice against trading against the trend. The reason for why Teodosi recommends us using this strategy for GBP/JPY only is because the pair is highly volatile but since we are trading binary options we don’t care about making pips, just the direction of the price, hence you can use this method on other assets that you are comfortable with.
Why does Teodosi’s Strategy Suck?
Using the hourly chart in combination with RSI (7) you won’t get that many optimal setups a day. Waiting for a full candle to close means that sometimes the price move will be so big and volatile that once the next candle opens, the overbought levels have become oversold or vice versa and once you enter the trade it can totally go against you. Another downside is the fact that trading every overbought and oversold area means you are completely ignoring the direction of the trend.
Why doesn’t Teodosi’s Strategy Suck?
I like both Stochastic and RSI and they are both easy to understand and monitor. They both work well in convergence and RSI (7) is often quite accurate. Waiting for a candle to close in the desired direction is beneficial, verifying which way price is more likely to head. Where this strategy sucks the least is in a ranging market condition. You’ll be able to pick many tops and bottoms bouncing off of S/R-lines after a valid candle (50% height of previous candle) has closed in your favor.
Conclusion – Invade the market with Teodosi, or not?
I think overall this strategy can be profitable in the long run if you involve price action and trend lines in your analysis. Go with the trend, not against it and take advantage of ranging market conditions. If you prefer to spend less time monitoring charts and waiting for decent setups to occur you can always go down a time frame to M30 and as I said before; change the RSI levels to 70/30. Of course, the further down you go in TF the riskier it gets! Only trade the overbought and oversold levels and confirm entries with S/R-lines. Furthermore, I think you can apply this strategy to other currency pairs as well and monitor 2 or 3 pairs simultaneously, ergo increasing the number of possible trading opportunities. As always you should back-test and demo-test a new strategy to see what works best for you. So try it out and let us know about your progress!