Category Archives: candlesticks

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Anatomy Of A Secular Bull Market

I have some pretty strong ideas about the current market environment. In fact, I think we are in the early stages of a secular bull market and can expect to see the markets continue to rise over the next 15-20 years. Seriously. This does not mean they are going straight up, far from it. But what I mean is that over the long term, with periodic corrections, consolidations and pullback, the markets are only going to go higher. I have demographic and technical analysis to back up my views but more of that in just a bit.

First, what is a secular bull market? This is a long and protracted period of economic growth that results in higher values for property, equities and other investments. This is because there are more buyers in the market than sellers. The reverse is true for a secular bear market.

  • Secular Trend – A secular trend is one that last for a long period of time, usually 5-25 years. The secular trend is the primary market trend and the strongest in terms of trend analysis.

Demographics Of The Secular Trend

It all comes down to demographics, people, to understand the secular trend. This story starts with the Baby Boomers, the largest segment of U.S. population. This generation was taught by their parents to save money, they understood the value of a dollar because it was made of silver and the environment for business was great in the post-war economy. Over time the Boomers built up portfolios of stocks, commodities and real estate as they were taught and advised by their money managers. The economy boomed during this time and America grew.

The next generation, my generation, was much smaller. For some reason the Baby Boom of the 50’s and 60’s was followed by a baby bust in the 70’s and early 80’s. As a generation we grew up with conflicting values. On the one hand we were told to save and invest by our parents, told to buy and consume by the t.v. and media and to “dam the man” by popular culture. Needless to say it was a fun time but not a time in which we, as a generation, were preparing for the future.

2010populationbyageYou may by now see where I am heading. The preceding generation was large, were savers and held a lot of what are termed “more risky” assets such as stocks and real estate. The following generation  was smaller and characterized by non-saving consumerism. When the Baby Boomers reached retirement age beginning in the early part of 2000’s they began to sell off their investments in preparation for retirement. The bad thing for them is that there are more of them than there are of us (70-80’s kids, Generation X-r’s) making a market environment where there are more sellers than buyers, a secular bear market. This is why the markets ultimately trended sideways from the 2000 until 2013. There are other things to keep in mind but demographics have the most to do with it. For example the Tech Bubble of the nineties and the market crash of 2008.

The Bull Is Back

I think it is easy to see how demographics affects the secular trend.  So, what does this mean now?  Well, after Gen X comes Gen Y and then the Millenials.  These two groups are larger than Gen X and make up a significantly large portion of the population. I understand that they are having a hard time with jobs at this time but we are making progress. Economic trends are up and so long as this is true the youngest and largest part of our population will continue to strengthen and invest in their and our futures. Remember, as the Millenials come on line in terms of jobs, business, investment and etc they are becoming the net force in the markets.

 The Technical Secular Picture

Looking at a chart of the Dow Jones Industrials or S&P 500 there is a technical argument for the secular bull market as well. The tech driven bull market that ended in the 1999-2000 Tech Bubble was the official end of the previous secular bull market and the beginning of the secular bear market which reigned from that time period until 2013. It is easy to see how the highs set in 2000 are the top of the range and held the U.S. markets in a sideways trend for roughly 14 years.

spx_secular_trend_analysis

During those 14 years there are some key time periods that coincide with the demographic analysis. First, in 2000 the Baby Boomers had begun to turn 60. Not all planned to retire at that time but enough did, and enough were planning to retire soon, to shift the tides in the favor of sellers and begin the secular bear market. Then, when the market was hitting bottom in 2003 the Gen X’er’s were turning 30 and taking charge of their lives. That, and a hot housing market, helped the markets to recover until 2008. At that time Boomers who had been forced to put off retirement stepped back in as sellers, popping the housing bubble and starting the global financial crisis.

The market hit bottom again in 2009 and has made a nice recovery since then. The current recovery, as was the previous, was orchestrated through QE, bail outs and financial manipulation but it has taken hold. Economic policies were a band-aid patch on the markets until the population could mature enough to bear up the burden of the Baby Boomers and still function strongly. The Gen X-er’s couldn’t do it alone, it took their younger brothers and sisters, and even their own kids in some cases, to lend a hand.

With that in mind there are some targets we can apply to the S&P 500. For one, the height of the secular bear is 750. It is reasonable to assume, using standard technical analysis, that the new secular bull would move up past the top of the range by at least that much before a major correction could be expected. This likely won’t happen in a straight line, will come with plenty of bumps and could take a year(s).

This binary options strategy works

Okane’s 15-30 Minute Strategy

A Binary Options Strategy That Works

“With no knowledge of trading I spent months studying, I read everything that I could find and tested various indicators and strategies. Finally I’ve put together everything that I’ve learned into a strategy that if followed correctly should keep you profitable. It’s important to see the whole picture and remind
yourself of what you are trying to achieve with the strategy you are currently using.

As a newbie this is difficult, suddenly you no longer know what you are looking for and you are simply lost! That’s when you start losing. So keep in mind what you are looking for when you are analyzing your charts. Hopefully with my strategy getting confirmations and spotting a possible trade is simplified. And that is the whole point!”

≈ Okane ≈

Mr. Okane is one my fellow traders over at Communitraders. He first described this strategy for trading 15-30 minute binary options in a forum post that has become on of my favorite on the site. The strategy is based on the RSI indicator, uses two time frames and is trend following.  Originally intended for taking signals on charts of 5 minute candle sticks I think it can also be used with success in longer time frames as well. Okane is trading CySEC style digital options but this strategy will also work well with Nadex and 0-100 options. This is how it works.

The Trading Tools

  • Chart Time Frames – This strategy uses two different chart time frames; 15 minute and 5 minute. The longer term is for determining trends and setting trade direction, the shorter term is for pin pointing entry.
  • Moving averages – This strategy uses three moving averages to help determine the trend. The moving averages are used on the longer term 15 minute chart and are the 50 bar, 21 bar and 5 bar Exponential Moving Averages. 
  • Support and Resistance – This strategy uses support and resistance lines. Lines should be drawn any where and in any time frame that they appear to be important. This tool is not restricted to the 15 and 5 minute charts. Okane uses a support and resistance tool that automatically seeks out potential areas. You could also use Fibonacci Retracements.
  • RSI(4) – This strategy uses RSI (Relative Strenght Index) to pin point entry. It is a fast RSI, set to 4 bars, and is only used to produce signals that follow the underlying trend as set on the 15 minute chart. Signals are only taken on the 5 minute charts.
  • Candlesticks – This strategy uses candle stick charts in both time frame. The candlesticks are used to help identify trends and entry points.
  • Stochastic – This strategy uses stochastic as a coincident indicator. Okane uses it to help determine underlying trend and to confirm his entries and exits.

The Strategy

For this strategy you will start with charts of 15 minute candlesticks. Of course, I recommend using a chart of daily or at least hourly candlesticks first to draw some support and resistance lines first. Once that is done begin with the 15 minute charts, if the current price is near one of the support/resistance lines it could be a negating factor for any signals you get in that direction. Use the moving averages to determine the trend in this time frame. If the shorter term averages are above the longer term 50 bar moving average then the trend is up, if they are below it then the trend is down. Also look for higher highs/higher lows in the case of an up trend and lower highs/lower lows in the case of a down trend.  It is best if both conditions are met as Okane does not recommend using this strategy in a sideways trending market.

Chart of 15 minute candlesticks

Chart of 15 minute candlesticks

Once you have identified a clear trend it is time to wait for the signal set up. The set up begins when the RSI reaches over bought or over sold levels. In the original posting a bearish example is given but this strategy works equally well in both directions. So, assuming a down trend, wait for the RSI to reach over bought. This will happen when the asset price bounces higher before resuming the current trend. Once RSI reaches over bought levels it is time to move down to the 5 minute charts to pin point an entry.

On the 5 minute chart you will need to wait for a confirming signal. This can be a variety of things but will be a signal continuing the underlying trend on the longer term 15 minute chart. Let’s look at the buy signal in the example below. Just prior to the signal the chart is bullish but prices are extended, waiting for a pull back is recommended. Once prices pull back to the moving averages a series of candlesticks confirms support and signals an entry. Once an entry is confirmed binary options with 15 to 30 minutes of expiry are used.

Chart of 5 minute candlesticks

Chart of 5 minute candlesticks

Before entering a trade you need to take support/resistance into consideration. If the asset’s price is close to S/R and your signal is in the same direction you may need to await a break through before opening a position. If the asset prices have already broken through S/R or are in between two S/R levels then trend following signals have a high rate of success. Stochastic is also used at this point. A trade may be indicated by RSI

Some Words Of Caution

This strategy is based on very short term charts. Even though currency pairs are very active in these time frames it is still harder to predict than longer time frames like hourly or daily movements.  You have to be really quick to catch some of the trades. News events can also have a big impact on this strategy and should be avoided until you get a handle on using it. In addition, Bogdan (one of the other Pros at BOTS.com) advises using a longer RSI than the (4) suggested in order to smooth out the line and help reduce false signals. Okane himself will caution you to use stochastic as a coincident indicator when timing entries. RSI may be signalling you to open a position but if stochastic says the move is already played out then you should stay away. An example would be is RSI indicated buying a call position but stochastic was already overbought.

Bonuses To Using Okane’s Strategy

  • Currency pairs with like denominations can also produce similar trades. For example, if a trade on the USD/JPY is working then a trade on the EUR/JPY may work as well. Likewise, if a trade on the USD/JPY is working then the opposite trade may also work on the EUR/USD. In order to take advantage of this you will need to be extra quick.
  • This strategy relies on two time frames to confirm signal. This helps to weed out false signals and even more importantly, pin point the right entry. It really sucks to take a good signal only to get in at the wrong time and have a potentially great trade lose.
  • This strategy has the approval and support of the trading community at BOTS.com and Communitraders.com.

Click here for the full story at CommuniTraders!

Binary Option Updates!

I apologize for the delay in adding this to the page. Okane has been updating his progress and trading account regularly on Communitraders forums but also has been keeping an update on his Google+ page. To check in for the latest results click here. 

yin yang candles

Using Japanese Candlesticks For Binary Options

Japanese Candlestick Charting For Binary Options

yin yang candlesThere are many ways to view financial charts. Point and Figure, High/Low bars and mountain are only a few. I get asked all the time what the best method of viewing charts for binary options trading is and I always say candlesticks. Candlesticks are the best way to trade binary options for several reasons. First and foremost it is because of how easy it is to see the market and market action. This is facilitated by how the candlesticks are formed and what they mean. At heart candlesticks are binary in nature, just like binary options. Candles are bullish or bearish, up or down black or white. Binary options trading is just the same, bullish or bearish up or down high or low black or white.

What Are Japanese Candlesticks

Japanese candlesticks are a method of plotting financial prices that began several centuries ago in feudal Japan. Candlestick charting originated in the same place as futures trading, the rice markets. There is not much difference between candlestick charts and standard high/low bar charts but that difference makes all the difference. A standard high/low bar chart displays prices in a way that each days openings, high, low and closing prices are easy to see. A candlestick chart displays those same daily features but in a way that is even easier to read than bar charts. Not only that, candlesticks are useful tools for trend identification and price patterns, can be used in any time frame successfully and can be applied to any trading strategy.

How Do You Read Japanese Candlesticks

bull and bear candlesJapanese candlesticks are read in the same way as a standard high/low bar. Each candles starts with the opening price and then traces a path that includes the daily high, the daily low and the closing price. The difference between high/low bars and candlesticks is that where high/low bars resemble a stick man candlesticks have more dimension and are color coded. A candlestick in which the closing price is higher than the opening price is white (usually) and a candlestick in which the closing price is lower than the opening price is black (usually). Most charting packages will allow you to customize the colors of the candles for maximum effect.

Basic Japanese Candlesticks For Binary Options Trading

There are four basic types of Japanese candlesticks for binary options traders to be aware of. Each of these basic types have variations and they can all be used by themselves or in conjunction with each other. The basic types are Long White Candle, Long Black Candle, Spinning Top and Doji.

  • Long White Candle – The long white candle is one in which the market opens, moves higher and closes higher. This candle can form when the market is bullish and moves strongly upward, when the market hits support and then bounces or any time that buyers outweigh sellers. It forms the strongest signal when it comes at or near significant areas of support or resistance.
  • Long Black Candle – The long black candle is the exact opposite of the long white candle. It forms when the market opens, moves lower and closes lower. It is a sign of bearishness. It can form when the market finds resistance or a top, in a downtrend when the market is moving steadily lower or any time when sellers out weigh buyers. Like the long white candle the long black candle creates the strongest signal when it forms near a previously identified area of support or resistance
  • spinning topsSpinning Tops – Spinning tops can be either white or black candles. They form when the market opens, move with a small range and closes near to where it opened. These candles are sign of indecision in the market and occur when neither bulls or bears are feeling strongly one way or the other. Spinning tops can form during up or down trends, above or below support/resistance and any other time when the markets are in or are nearly in balance.
  • Doji Candle – Doji candles are one of the most unique candles. Dojis are a sign of balance in a strong market and often occur at major turning points. A doji forms when the market opens, moves strongly in one direction, then strongly in the other direction and then closes at or very near the previous day’s close. Doji’s are the one type of candlestick that are neither white or black. Like all candlesticks, doji’s give the strongest signal when they form at or near support and resistance levels.

basic dojis

How To Use Japanese Candlesticks In Binary Options Trading

candlestick chart sample no time frameJapanese candlesticks have many uses in binary options trading. They can be used to help determine trend, support and residence, price patterns, momentum and to generate long/short term trading signals. In fact, Japanese candlesticks may be the most useful tool in the technical analysis arsenal for binary options or any other kind of trading.

  • Use them to draw trend lines and support/resistance lines just like you would use high/low bars. Experiment with using the top of the body and the top of the wick for drawing lines.
  • You can also use candlesticks with  Fibonacci Retracements, Fans or Arcs to look for or confirm potential areas of support and resistance or turning points in the market.
  • Japanese candles can be used to identify price patterns. The easy to read format makes it much easier to see the patterns form than with high/low bars. Another bonus to candlesticks is that there are many more identifiable patterns and signals than with high/low bars.
  • Candlesticks can be use to measure momentum. If the candles in a series get progressively shorter than momentum is declining, if the candles are getting longer then momentum is increasing.
  • Candlesticks can give a wide variety of signals that can be used for long and short term trading signals. Rising three methods, three black crows, tombstone doji’s and dragonfly’s all have short and long term implications for binary options trading.
  • Candlesticks can be used in any time frame and applied to any strategy. The best signals of any system come when they are confirmed in more than one time frame and that is true of Japanese candlesticks too.

Japanese Candle Chart Techniques For Binary Options Trading 

doji confirms resistanceA new candle forms every day the markets are open. Depending on the daily news, the state of the economy and the current trend these candles could be from any one of the four major groups. Just because a long white candle or a dragonfly doji forms does not necessarily mean the charts are signaling a trade. A doji that forms when an assets prices are near the middle of a trading range is not as important as one that forms when prices are testing a long term bottom. Likewise, a doji forming at a long term bottom is not as strong as a doji that forms at a long term bottom accompanied by 4 times average daily volume and a major economic announcement. Reading and interpreting Japanese candlesticks, though easy, still takes some time, experience and practice.

To find out more follow along with me, The Geek, and my Geek Account for social trading binary options.