Confirming Strength with Price Break Charts-Option Strategy

Because detecting direction in the underlying market is so important, the trader should look to confirm the decisions and conclusions made using the basic trend line, candlestick, resistance, and support tools. A very powerful chart tool and technique to use is price breaks. The book Sentiment Indicators provides a very detailed view of price break charts for the very serious trader,but this chapter provides a basic understanding necessary for applying it to binary option trading.Price break charts have their origins with Japanese traders.

There was little western awareness of them until the publication of Steve Nison’s book,Beyond Candlesticks: New Japanese Charting Techniques Revealed (Nison 1994).In effect, this book reintroduced price break charts to the United States. Price break charts provide a powerful ability to detect the strength of a trend and where it will end. As a result, they can be a very effective tool for binary option trading. Let’s fi rst look at the basics of price break charts.Price break charts look like candlesticks without the wicks. They are bricks or columns.

A good way to view them is as steps up or steps down in the direction that the sentiment is taking. They usually have a black color for a down move and a white color for an upward move.If a new low has been created, a new black column is added or painted onto the chart. If a new high has been reached, then a new white column appears . If no new low or high has been achieved,nothing is added.

One of the most benefi cial aspects of price break charts is the clarity of their rules.Price break charts may seem simplistic because they result from a simple set of rules, but they unleash a great deal of technical analysis. From the perspective of sentiment analysis, by registering only the occurrences when a price is establishing a new high or a new low, the chart is in effect visualizing the persistence of sentiment.

The price’s ability to persist in setting new highs or new lows provides a way to quantify trends other than by using traditional trend analysis. It goes beyond the simple criteria of having higher highs and higher lows, or lower highs and lower lows. When we say a trend is in place,don’t we mean that there is a persistence of sentiment?

Viewing it from the perspective of persistence, the trader can begin to quantify how serious a trend is, when it is weakening, and when it has reversed. Price break charts measure this persistence in an unambiguous way. Using price break charts,the trader cannot dispute the facts of the price action; either the price has succeeded in persisting higher or lower, or it has not. In addition, the trader knows in advance where a price break chart would be considered strong enough to break the trend.