Trade Setups, Indicators and Charting

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Video Transcription

Welcome to the third lesson of the day trading binary options course.

In this lesson we are going to teach you the setups that you will need to look for with this strategy and the indicators that you will be using.

Okay, so this is the four-hour Euro-US Dollar track, and this is what we have done so far.

We have measured the Fibonacci retracement levels from the low to the high of the entire move and we have measured the Fibonacci retracement levels from this low to this high, which will be the secondary obstruction.

Price has broken to the downside and we are looking to put on a trade, but first of all, we need to know what indicators we are going to be using.

We are going to use the RSI. The RSI is the relative strength index. Okay?

Now the RSI oscillates between 100 and 0 and we are using the levels of 20 and 80 to tell us when the market is overbought and oversold, because with this strategy we only want to buy calls in really oversold market and buy puts in really overbought markets.

And we are also going to use the daily pivots. The pivot point is simply the average of the high, low and closing price of the previous day and we are going to use only the daily pivots with this strategy.

So when you get this indicator and you want to plug in all your charts you go to the weekly and weekly support and resistance and just click on false, and of course the monthly and the monthly support and resistance and you click on false. Then, you click “Okay”.

Now these are the daily periods. I know the chart looks a little bit heavy, but remember this is the four-hour chart and we are going to be trading off the 15-minute chart. All right. Okay?

Now. Let’s say that now the setups you are going to be looking for are very simple. One: if we are in an uptrend and we have corrected to a level of previous resistance and now are testing it as support, which also confluences with Fibonacci levels and the other side makes a turnaround over 20 we have a signal to buy calls on the asset we are trading. Okay?

In this case, we would have bought calls right here. And, of course, in this case, since we are on the 15-minute chart, we can choose to trade the two-hour expiration option or the end of day expiration option, which would have ended up in the money.

But the thing about this is that this is late in the day. So let’s go back a little bit to another situation where we can actually profit from momentum.

So the setups you are looking for are previous [inaudible 00:03:43] support and resistance that are in confluence with Fibonacci levels that are being tested right now and being rejected. And the RSI should give you the confirmation.

Now, take a look at this. When price broke to the downside it started to correct, okay, and started to trade on this range. This is untradeable to us, okay, because we are not around a level of support or resistance and we are not trending at the moment.

But when price reaches this level of previous support and tested as resistance and we also have this Fibonacci level that are being rejected, we can buy puts on this currency pair. But when is the correct moment to buy puts? The correct moment to buy puts would be when this candle closes. And let me just put on a rectangle here so you can actually see it. This is the correct moment to buy puts on this currency pair. Okay?

And you can buy puts since we are trading with a 15-minute chart you can buy puts for a two-hour expiration or end of day expiration is fine also.

And why do we trade, why do we buy puts here? Because, one, remember when price breaks through a level, most likely it will return to test it to the other side, or back test it. Okay? This level was a level of support. It was broken to the downside and now price came back and tested at resistance. Remember that levels are not lines so an entire level could be all of this right here. Okay?

Now, this is the level of resistance. And of course we have the 50 period moving average acting as, clearly, resistance also. So this gives us a double top. Remember a double top is a chart pattern that indicates reversal. And we have and end that way we break through the [next] line which is this one right here and we also break this. This is what’s more important, okay?

We are going to be using also trend lines on this strategy. Remember that these are advanced strategies. These are not mechanical strategies that will give you the entry and the exact price level. These are advanced trading strategies for advanced traders and you are supposed to do your homework and understand why we are doing this. Okay?

Now let me explain what you want to look for. What you want to look for is this. Of course we couldn’t catch this move to the downside, but when price broke through this level we know that we have momentum to the downside. We are in an immediate bear market. Even though our four-hour chart said that our market sentiment is up or we are in an overall bullish market, remember that we broke with the second bull structure and we could be in reversal. We don’t know that yet. Okay? We are testing these levels that are holding right now but we don’t know if these levels are going to hold.

But at this time when this level broke what we want to see is a retest of the levels on the other side and then a break of the immediate trend line. Because price, most likely, will be correcting inside an ascending range. When price breaks and closes below this trend line we have a signal to buy puts from an hourly expiry to end of day expiration.

This is a perfect setup and we would actually have ended up in the money.

And the good thing about this is that because we are trading the 15 minute timeframe we can monitor a lot of currency pairs. Okay? And since we know how to put alarms on our charts after this level broke, we could have put an alarm at the 38-42 level or the 38-40 level to let us know when price reached this area of now-resistance. Okay?

When the alarm gets triggered we jump into the Euro-US Dollar chart, we draw the trend line, and wait for the break below it. When price breaks below it we buy put options and, as you can see, the RSI turns down to below the 50 area which is bear country. So we are good to go on this setup.

So this is basically what you would be looking for, okay? When levels are broken, we want our test back of the level and a break of the immediate structure. And when levels hold, we want a confirmation of the RSI to buy our binary options. And the daily periods will also give us [inaudible 00:10:10] support and resistance that we need to look for, okay?

And as you can see, the daily resistance one confluences with this overall area of resistance. So what we can do is we can actually put on an alarm and we are going to do it, actually. We are going to put on an alarm at this level right here which is 38, 138, 300. Because when price hits this level we want to be alerted that this level might actually be rejected and we might have another setup to buy puts on this currency pair or this level can be broken and we might have a breakout fade.

What we need to do is put on the level, which is the T138, 30 percent. 300 on the Euro-US Dollar. We want the alert, it’s fine, and when price goes above it. And there you go. The alarm is set and we are good to go.

So this is basically what you look for, okay? When price breaks we look for a retest and then we can buy our binary options. When price rejects we want confirmation with the RSI to buy our binary options. And on the next lesson we are going to learn how to look for volatility and how to trade into momentum.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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