Full Review of Three White Soldiers/Three Black Crows With Bollinger Bands for Binary Options
Candlesticks and candlestick chart patterns have been a useful technical analysis tool for over 500 hundred years. Developed in the rice futures markets of feudal Japan this chart style provides an easy to see pictorial representation of prices, price movement and price patterns which has become a standard for equity, forex and binary traders. This system is based on one of many well known and easily recognized candle patterns so I was intrigued to see how it would work. As a rule, three soldiers/three crows is a reversal confirmation pattern, with the addition of Bollinger Bands they become valid trading signals useful for equities, forex and binary…at least according to the author.
Find the full strategy here http://forex-strategies-revealed.com/3white-soldiers-3black-crows
What exactly are three white soldiers or black crows you ask? They are three long-bodied candles of the same color (price direction) that appear one after another. Three soldiers for up days and three crows for down days. The author, who is unnamed by the website, assumes that price will continue on in the same direction as the candle signal and uses the close of the third candle as the entry point. He goes on to claim that the strategy will work in any time frame and with any currency pair as well as any other charted security.
How To Use Three White Soldiers/Three Black Crows With Bollinger Bands
Using the strategy is simple. Look for the formation of three black or three white candles and trade on the close of the third. If the candles are black, down days, buy a put. If the candles are white, up days, buy a call, simple as that. In the original posting the author fails to state how the Bollinger Bands work with the system but reading through the comments section I found that he uses any of the three Bollinger lines to create his signal, providing that he gets his three candles. He later adds that the system works best when used off a bounce from any of the three Bollinger lines but does not specify that as a criteria.
Why This System Sucks Really Bad
There are a few reasons why this system sucks really bad but first I have to ask the question…does this guy actually know how to trade? Because if he does he is maliciously trying to create losers. It seems more likely to me that this person has just begun to learn about trading and has arbitrarily picked two indicators without knowing how to use them. First of all, he does not provide any parameters for his Three Soldiers/Three Crows. He accepts ANY three black or white candles as his signal as long as they are consecutive. Second, he is using Bollinger Bands as his entry point but also without any specific parameters, dumb. There are at least a half dozen ways to use Bollinger Bands as a signal generator but all rely on specific parameters and are generally contrarian.
The definition of Three Soldiers/Three Crows candle signal is very specific. The candles all have to be long bodied, open within the previous candles body and close at a new high or low in the case of Three Crows. Three white or black candles hanging out in space are not a valid trading signal according to the definition. Further, the definition clearly states that this signal confirms reversals, not trends, so it isn’t even being used correctly.
It is possible for three white or three black candles to appear at any time on any chart but they are not all significant. Candlesticks are not a trading signal on their own unless they come with significant volume and at a significant juncture such as a trend line, support or resistance. Three candles could be spinning tops, doji’s or many other small bodied candles that could be misinterpreted by the author.
The strategy is also not using Bollinger Bands correctly, at least by my training. Bollinger bands are used to determine the relativity of high and low prices and account for volatility. When candles appear at the upper band prices are high relative to recent trading and when candles appear at the lower band prices are low. Further, the bands widen and narrow according to a standard deviation based on the volatility of the underlying, the more volatile a stock, currency pair or commodity the wider the Bollinger Bands will be. There is no contingency for variations in bandwidth, an important feature of Bollinger trader. Bollingers are great for standard options trading and can signal times to buy or sell options as a strategy but it is not really a trend determining tool. The way this strategy is written you might as well not even use the Bollinger Bands.
Why This Strategy Does Not Suck
This strategy does not suck for one reason. It is a great example of how anything can get printed on the internet, even if it isn’t true. It also has another redeeming quality, it gives me the chance to help guide some of you to the proper uses of candlestick charts and Bollinger Bands which we discuss in depth on the BOTS.com forum.
My Last Word
This is not a BOTS.com approved strategy, unless your goal is to blindly trade based on random events with the purpose of loosing money. At best, this is two half strategies that do not match. The three soldiers/crows signal is great when used with trend lines, support/resistance or MACD divergences. Bollinger Bands are great for determining high/low volatility, which is great for standard options, but I have not yet figured out a way to use them with binaries because they are not really a trend determining device.
Find and Discuss approved Binary Options Strategies on our Forum