Using Confluence in Binary Options Trading
When it comes to trading there are so many indicators and so many strategies and so many ways to look at things that it can be a rather confusing exercise but in this article I am going to talk about one of my favorite subjects and that is using confluence in trading. Finding that magical point in time. When everything you look at to help you vision where the market is and where it is possbly going are all showing you the same thing this is called confluence.
WHY The F should I read all this?
Honestly it beats the hell out of me. No, seriously I am going to try and explain more of how I look at planning trades and use some indicators and to explore the concept of confluence in your trading in hopes of helping you to enhance your trading style by cutting through some of the confusion and aiding you with trading more confidently psychologically speaking.
Getting time on your side for BIGGER GAINS!
Firstly lets get the indicators out of the way. I don't stress about indicators as you guys know because they just indicate but I know some people like to see them and get a lot from visuals so I am going to do a setup here using RSI again just a different way but closer to how most people view it and Bollinger bands and just to tie this to the subject of timing I will use an Aroon oscillator. PLEASE remember IMO the indicators are just illustrations of some reasoning behind doing a trade.
I like the Aroon because it is very simple and I think the oscillator makes it even simpler to look at. The Aroon indicator is fairly new among it's brothers and sisters and was created in 1995 by Tushar Chande. All it does is show the time it takes for lower lows and higher highs based in time rather than price. You guys probably know I love trading and relating it to people all over the world in all walks of life sharing a single goal and this international indicator's name dates back to the ancient Indian language of Sanskrit and means: By Dawns early light.
OK lets get started with the theory here. We are going to be doing a contrarian trade or reversal what ever you want to call it. I say contrarian and want to touch on why. At the core of most trader theory even with all these different indis etc the common belief is that the predominate trend will continue because it is stronger and will last longer. So if I am going to do a contrarian trade it does not mean in my mind the trend has reversed all of a sudden it means in my mind there is a ripple bouncing the water up in a river that is still going down stream for example.
I am going to share a GBPUSD 1 hour chart and this is not a signal from an algo it is a HUMAN BEING who understands a few indicators and puts them together looking for confluence. Because when all these indicators agree I can trade with a bunch of other HUMAN BEINGS that might not understand all of them infact they may fancy just one or two of them but if I see confluence then I am just gathering a bunch of these humans together at a point in time where they may all agree with me.
I am not predicting and I want show a trade this time rather I am just sharing reasoning and when you understand it then you can make your own signals like this regularly. I had my Birthday and I am trying to give you guys a free strategy but with a warning that trading contrarian is more difficult to pull off consistently in my opinion than riding the predominate trend.
OK lots of stuff on this chart and that is because it was late and I was tired and did not want to do a lot of different snaps sorry. Lets talk about what we are looking at here.
Bollinger Bands: Nothing special just bands on a 1H chart and they are illustrating to me the market was trending down hard at a point.
RSI: OK I know I said most guys misuse RSI to predict when a market is overSOLD or overBOUGHT well I am going contradict myself here and use it that way. Wait, am I contradicting myself using RSI to predict or if you look closer am I just using it to indicate an overSOLD state? Instead of jumping in the minute RSI is below 30 looking to buy doesn't the word overSOLD imply that there is a need for some length of time to have passed in the markets to stay at this price based interpretation of overSOLD? YES, so you can see that RSI is below 30 for some time on this chart. look on the chart at the red RSI indicator in the top window just below my candle chart and see how it set there for a while this is what I am looking for if I use RSI that way. A little difference but it goes a long way and you got to train your eyes to look close for this small detail so that you can have more reasoning as to why you put on what you hope to be a successful trade.
Aroon oscillator: OK price can be interpreted as oversold but we need to get time on our side like the stones suggested in their song. So in the bottom window you can see the aroon had been down for a very long time and then crossed into the positive indicating that time is on the side of higher highs. I put a thumbs up to show the safest time when all these agreed.
What if you HATE indicators and just love price action ?
( PA man it's all the rage )
Well you might be missing out on more perspective that can help you with your psychology of putting on a trade because NO ONE can predict the markets but you can stoke the fires of your reasoning behind getting in and know regardless of the outcome you had even more good reasons to try your trade.
However I got a deal for PA brothers and sisters also because there was a nice wick after all that run down indicating the market did hit a low where no one was willing to continue to sell historically and price closed higher on the hour. I put a blue line right at the close and an arrow above the next hour where the market started running up.
1. You could have done some 5-15+ minute Calls there and scored pretty good most likely
2. started a box spread or 2 hour Binary on nadex if you were cocky and could find good risk vs Reward.
The stronger signal however is when RSI has moved above 30 and the Aroon has crossed into higher highs taking less time ( the thumbs up ). Also I want to point out that if you were spot trading or doing a bull spread on Nadex for example a good exit would be near or at the center of the Bollinger bands ( this is contrarian remember ). Lastly I want to point out that there was a wick earlier as well but the market continued down however if you can embrace all of the tools instead of picking sides ( PA vs Indi ) then do you see what the difference in returns could be when it works because you got more people in the market to agree with you essentially?
I hope the above brings some more perspective to the wonderful world of speculating on the markets for someone out there reading this. Remember if Alfred is Talking Markets you can take it to the bank!