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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • MAY 2-6 MARKET MOVERS PART 2: OTHER MARKET DRIVERS, DEBT RESTRUCTURE THREAT 0 comments
    May 1, 2011 12:22 AM | about stocks: UUP, UDN, FXE, ERO, URR, ULE, EUO, DRR, FXA, FXB, FXC, FXD, FXF, FXEN, FXY, JYF, AUNZ, CYB, GLD, CNY, USO, DUG, USL, NBO, DBV, ICI, CEW, SLV, OIL, SPY, SDS, RSW, BXDC, SPXU, SH, DIA, EWC, EWA, TLT, XHB, ITM, IGOV, VGK, TBT, GSG, DBC, CORN, ICN, SZR, BZF, GRU, DAX, FRC, DB, SAN, BNO, ENI
     Additional market movers, trading ramifications for both spot market and binary options traders

    The following is a continuation of part one.

    Applying Lessons From The Prior Week: When To Stay Long, Take Profits, Go Short

    By all means use whatever combination of indicators you like, but below we’ll focus on using just the Double Bollinger Bands (DBBs) as momentum indicators for the sake of brevity and simplicity.

    Examples of these levels that suggest staying long, taking profits, and going short.

    For the sake of continuity, here’s the chart we left off with at the end of Part 1.

    ScreenHunter 10 May 01 03 34  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    S&P 500 WEEKLY CHART COURTESY OF ANYOPTION.COM   10MAY01 0334

    S&P 500

    If you prefer to trade off of weekly charts: Consider staying long until breach of the DBBBZ and 10 week EMA the area around 1318. Consider shorts only after price gets below the area around 1271. See the above chart for illustration.

    If you prefer to trade off of daily charts: Consider staying long until breach of the DBBBZ in the area around 1344. Consider shorts only after price gets below the DBBSZ area around 1312. See the daily chart below for illustration.

    By all means use other technical and fundamental evidence for confirmation. For the sake of simplicity and brevity we present only the DBB’s, a very effective momentum indicator, as an illustration.

    ScreenHunter 11 May 01 03 36  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    S&P 500 DAILY CHART COURTESY OF ANYOPTION.COM    11MAY01 0336

    Instruments to use:
    • ETF traders: Use the SPY, DIA,  QQQQ, or other major index ETF
    • Spot Market index traders: trade these directly
    • Index Binary Option traders: Buy S&P 500 calls to go long, puts to go short. Because long term trends are more reliable and stable, consider using options with daily (with daily charts) or weekly expirations if using weekly charts.

    NB: Because binary options traders need only get the trend right over the life of the option, it’s a good idea to play the longest term and hence most stable trend you can find if that longer term trend is clear and not choppy. Thus index binary option traders should definitely also look at monthly charts and if the trend is clear trade in the direction of the monthly chart. For example, if you look at the monthly S&P 500 chart below, you’ll see that if you’d done nothing else but buy a monthly call at the start of the month on the S&P 500 from October onwards, (when the index entered the DBB buy zone of the upper to bands, you’d have made a winning trade 5 out of 7 months. Assuming a typical 70% profit for winning trades and 85% loss on losing trades, that would be a 25% overall gain. Here’s the math, assuming you bought $100 calls at the start of each month whenever the monthly candle was within the upper 2 bands, the Double Bollinger Band buy zone.

      FOR MONTHLY S&P 500 TRADING ONLY USING DOUBLE BOLLINGER BANDS BUY AND SELL RULES
                         
      Trade Number                
      Amount Of Trades Payout       % Gain      
    Wins 100 5 170   850          
    Losses 100 2 15   30          
    Totals 700 7     880   25.71%      

    This is a classic case of how binary options can be an almost mindlessly easy way to trade a strong trend. The monthly expirations also force traders to take profits and reevaluate the trend at the start of each period, in this case every month. The same idea can be applied to strong trends on daily or weekly charts, if price is with the upper 2 bands just go long the asset with a call option. If price is within the lower 2 bands buy a put.  Just make sure your positions are small enough so that the worst case 85% loss isn’t more that 1-5% of your trading capital.

     

    That’s the extent of your risk and money management.

    For more on the pros and cons of binary options, see: BINARY OPTIONS PROS AND CONS

    Applying DBBs to the below assets on weekly and daily charts, here are some key levels to watch for some of the most popular assets.

    EURUSD

    If prefer weekly charts: Consider staying long until breach of the DBBBZ (bounded by upper yellow and red bands in the below chart) in the area around 1.4285. Consider shorts only after price gets within the area around 1.332, the DBBSZ bounded by the lower red and yellow bands in the chart below).

    ScreenHunter 09 May 01 03 28  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    EURUSD WEEKLY CHART COURTESY OF ANYOPTION.COM   09MAY01 0328

    If you prefer daily charts: Consider staying long until breach of the DBBBZ in the area around 1.4650. Consider shorts only after price gets within the DBBSZ area around or below 1.4375.

    Instruments to use:
    • ETF traders: To be long the pair consider being long FXE, or UDN when short the pair, EUO or UUP .
    • Spot Market forex traders: trade these directly
    • Forex Binary Option traders: Buy EURUSD calls to go long, puts to go short. Because long term trends are more reliable and stable, consider using options with daily (with daily charts) or weekly expirations if using weekly charts. You can also use a combination of daily, weekly, and monthly charts to trade monthly EURUSD binary options with the one or two brokers that offer them. I know anyoption.com does. There may be some others that do so also. Monthly trends are more stable. Because binary options traders need only get the trend right over the life of the option, it’s a good idea to play the longest term and hence most stable trend you can find if that longer term trend is clear and not choppy.
    GOLD

    If prefer weekly charts: Consider staying long until breach of the DBBBZ and 10 week EMA the area around 1467. Consider shorts only after price enters the DBBSZ area around 1360. See the chart below for illustration.

    ScreenHunter 12 May 01 03 41  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    GOLD WEEKLY CHART COURTESY OF ANYOPTION.COM 12may 01 0341

    If you prefer daily charts: Consider staying long until breach of the DBBBZ in the area around 1521. Consider shorts only after price gets below the DBBSZ area around 1465. See the daily chart below for illustration.

    ScreenHunter 13 May 01 03 44  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    GOLD DAILY CHART COURTESY ANYOPTION.COM 13may 01 0344

    Instruments to use:
    • ETF traders: To be long gold buy a gold ETF like GLD of PHYS
    • Spot Market gold traders: trade these directly
    • Gold Binary Option traders: Buy Gold calls to go long , puts to go short. Because long term trends are more reliable and stable, consider using options with daily (with daily charts) or weekly expirations if using weekly charts. You can also use a combination of daily, weekly, and monthly charts to trade monthly Gold binary options with the one or two brokers that offer them. I know anyoption.com does. There may be some others that do so also. Monthly trends are more stable. Because binary options traders need only get the trend right over the life of the option, it’s a good idea to play the longest term and hence most stable trend you can find if that longer term trend is clear and not choppy. See the section above on the S&P for an example of trading off of a strong monthly trend.

    Applying double Bollinger band examples to the below, here are levels to watch.

    EURJPY

    Applying double Bollinger band examples to the below, here are levels to watch.

    Per weekly charts:

    Consider staying long until price gets below: 118

    Consider going short once price gets below: 109

    Per daily charts:

    Consider staying long until price gets below: 122 (NB: is already below this level)

    Consider going short once price gets below: 119

    Instruments to use:
    • ETF traders: To be long the EURJPY, the FXE is the best you can do but it’s mostly designed to play the EURUSD though the pairs are often similar. Better to just short the FXY long yen ETF, which usually moves opposite the EUR.
    • Spot Market forex traders: trade the pair directly
    • Forex Binary Option traders: Buy EURJPY calls to go long , puts to go short. NB: the EURJPY only recently entered the DBB buy zone over the past few weeks, so the trend is less well established, and isn’t even in the buy zone on the daily charts, so consider waiting to go long this pair.
    GBPUSD

    Per weekly charts

    Consider staying long until price gets below:  1.6335

    Consider going short once price gets below: 1.5745

    Per daily charts:

    Consider staying long until price gets below: 1.6558

    Consider going short once price gets below: 1.6293

    Instruments to use:
    • ETF traders: To be long the GBPUSD, BUY FXB or UDN.
    • Spot Market forex traders: trade the pair directly
    • Forex Binary Option traders: Buy GBPUSD calls to go long , puts to go short. NB: Note the below weekly GBPUSD chart.

    ScreenHunter 14 May 01 06 26  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    GBPUSD WEEKLY CHART COURTESY OF ANYOPTION.COM 14may 01 0626

    The key takeaway is that it’s been in the buy zone since early March, and has resumed its uptrend. Looks like a promising weekly trade, especially if you refine your entry by waiting for a bounce off of near term support

    SILVER

    Per weekly charts

    Consider staying long until price gets below:  40.48

    Consider going short once price gets below: 28.30

    Per daily charts:

    Consider staying long until price gets below: 47

    Consider going short once price gets below: 41

    Instruments to use:
    • ETF traders: To be long the Silver, BUY SIL, SLV, or SLW etc.
    • Spot Market silver traders: trade it directly
    • Silver Binary Option traders: Buy Silver calls to go long as long as it remains within the upper bands, the  DBBBZ , puts to go short when it’s in the area bounded by the lower DBBs, the sell zone..
    OIL (BRENT CRUDE)

    Per weekly charts

    Consider staying long until price gets below:  120

    Consider going short once price gets below: 97

    Per daily charts:

    Consider staying long until price gets below: 124

    Consider going short once price gets below: 120

    Instruments to use:
    • ETF traders: To be long the Brent Crude buy: BNO
    • Spot Market oil traders: trade it directly
    • Brent crude oil Binary Option traders: Buy calls to go long as long as it remains within the upper bands, the  DBBBZ , puts to go short when it’s in the area bounded by the lower DBBs, the sell zone..

    FYI this has been one of the best long term plays for weekly or monthly oil binary options and thus odds are especially good that it could retain its uptrend.

    Note the weekly chart below of Brent Crude for an extremely high probability trade.

    ScreenHunter 05 Apr 29 12 58 1024x667  May 2-6 Market Movers Part 2: Other Market Drivers & How To Trade Them

    BRENT CRUDE WEEKLY CHART SEPTEMBER 2011 -  APRIL 2011 COURTESY OF ANYOPTION.COM

    05apr29 1258

    Here are the results for a trader who did nothing but buy a binary option call on Brent crude at the start of each week from the time it entered the upper 2 Bollinger bands of the Double Bollinger Bands.

      FOR WEEKLY BRENT OIL CHART        
                   
                   
      Trade Amount Number Of Trades Payout Per $100 Position   Total Payout   % Gain
    Winning

     

    Trades

    $100 33 $170   $5610    
    Losing Trades 100 8 15   120    
    Totals 4100 41     5730   39.75%
                   

    Of course by using a few more indicators and, instead of just buying at first day of the week, consider waiting until price tests support then resumes trend, you’d increase your odds

    Scheduled Calendar Events

    Top Events in Boldface

    [visit for trading ramifications of weekly calendar events visit:  http://globalmarkets.anyoption.com, look under weekly tab for May 2-6: Calendar Highlights, Themes, Key Market Movers & Tradable Trends

    OTHER

    Beware the wildcard event that presents the most direct threat to the bull market – an announcement of a Greek debt restructure, aka partial default. That is likely to start a chain reaction arising from uncertainty about who is exposed directly or indirectly, and spiking yields for all PIIGS nations which may well be see their yields soar as they too are now seen as greater default risks, now that the EU has let it happen once. Again, the real concern is Spain, so expect plenty of effort directed towards assuring markets that Spain is different.


    DISCLOSURE & DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER

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