The inside bar candlestick is at the heart of this digital options strategy, providing the signal for entry and direction. This formation is one which can only be spotted using a candlestick or bar chart, so be sure to have access to one prior to trying to use this strategy. The goal here will be to determine the point at which the asset price is likely to change direction, moving in reverse of its previous direction. When the bar is noted in an overbought range, selling should take place, providing you with a Put option opportunity.
The formation that you are looking for will consist of a pair of candles. The second of these will provide a lower high point, being a higher low point than the first of the two. The second should actually become enveloped inside the first, which is referred to by some as the Mother bar. The Inside bar would then be the second. Lengthier time periods work better with this digital options strategy, but shorter periods are not out of the question if you are not worried about a potential increase in false signals.
When overbuying is taking place, you will draw a horizontal line from the 1st bar low and then wait for a candle to close under this. It is not unheard of for several inside bars to follow the Mother bar. However, you trade indicator comes immediately after the closing for the candle that exceeded the low point of the Mother. When overselling is taking place, draw the line from the Mother bar high point and then wait for a closing that is higher than this. Entry should come just after the Mother bar high point is exceeded.
One of the drawbacks to this digital options strategy is that signal application might be slight confusing. New traders, in particular, could accidentally reverse the signals and select the wrong position. Also, this strategy does require some patience, yet waiting too long could cause you to miss the entry signal and enter into the contract too late. To sum it up, this strategy is best used by traders who are at least somewhat familiar with the markets and their movements.
You could choose to add in oscillators as an additional means of spotting overbuying and overselling. Just be sure that you first and foremost know how to read candlestick charts and that you do keep pullbacks in mind, as these can produce false signals. This problem can be overcome by allotting a pullback allowance within the entry candle and selecting the one hour expiry to go along with your analysis. With just a little effort, this digital options strategy can be extremely effective.