Alternative Charting Methods

1. Alternative Charting Methods

Alternative Charting Methods represent a departure from the traditional candlestick and line charts commonly used in financial markets, including the world of binary options. While these standard charts are excellent for visualizing price action, alternative methods offer unique perspectives and can reveal patterns that might otherwise remain hidden. This article will explore several of these methods, detailing their construction, interpretation, and potential application in binary options trading. Understanding these techniques can provide a trader with a more comprehensive analytical toolkit and potentially improve trading decisions.

Why Explore Alternative Charts?

Traditional charts, while useful, can sometimes be limited in their ability to highlight specific aspects of market behavior. Alternative charts are designed to address these limitations by:

Focusing on specific data points: Some charts emphasize volume, volatility, or price range, offering a specialized view.
Filtering noise: Certain methods smooth out price fluctuations to reveal underlying trends.
Identifying patterns: Alternative visual representations can make certain patterns more readily apparent.
Providing a different perspective: A fresh look at the data can challenge assumptions and lead to new insights.

Kagi Charts

Kagi charts are a type of trend-following charting method that focuses on price reversals. Unlike time-based charts, Kagi charts are built on price movements. A vertical line is drawn as long as the price continues in the same direction. When the price reverses and exceeds a predetermined reversal amount (typically a percentage of the previous high/low), a new vertical line is started in the opposite direction. Horizontal lines connect the turning points.

Interpretation: A series of rising lines indicates an uptrend, while a series of falling lines indicates a downtrend. Breakouts above or below key Kagi levels can signal potential trading opportunities. Kagi charts are excellent for identifying strong trends and filtering out short-term noise.
Binary Options Application: A “High” binary option can be considered if the Kagi chart shows a strong uptrend and breaks through a previous high. Conversely, a “Low” option could be selected during a strong downtrend with a breakout below a previous low.

Renko Charts

Renko charts are another type of chart built on price movements, ignoring time. A new “brick” is added to the chart only when the price moves by a specified amount (the "brick size"). The bricks are colored to indicate the direction of the price movement – typically green for up and red for down.

Interpretation: Renko charts highlight significant price changes and filter out minor fluctuations. A series of consecutive bricks of the same color indicates a strong trend. Double tops and bottoms are easily identifiable on Renko charts.
Binary Options Application: Renko charts can be used to identify clear trend directions for binary options trading. A sequence of green bricks could signal a "Call" option, while a sequence of red bricks could suggest a "Put" option. The brick size should be selected based on the volatility of the underlying asset and the desired trade duration.

Point and Figure Charts

Point and Figure charts are unique in that they use ‘X’s to represent upward price movements and ‘O’s to represent downward movements. The chart is constructed using predetermined box sizes and reversal amounts. A column of ‘X’s is built until the price reverses and meets the reversal amount, at which point a new column of ‘O’s is started.

Interpretation: Point and Figure charts are excellent for identifying support and resistance levels. Double tops and bottoms are clearly visible. Patterns like bullish and bearish flags can also be spotted. The chart ignores time, focusing solely on price changes.
Binary Options Application: Breakouts from established Point and Figure patterns can be used to trigger binary options trades. For example, a breakout above a double top could signal a "High" option, while a breakdown below a double bottom could suggest a "Low" option.

Three Line Break Charts

Three Line Break charts are designed to identify potential trend reversals. They display the highest high, lowest low, and the closing price of each period. The chart is constructed by connecting the highest highs, lowest lows, and closing prices with lines.

Interpretation: A break of the middle line (closing price line) signals a potential trend change. A break above the middle line suggests a bullish reversal, while a break below suggests a bearish reversal.
Binary Options Application: A break above the middle line on a Three Line Break chart could be a signal to buy a "Call" option, expecting the price to continue rising. Conversely, a break below the middle line could indicate a "Put" option.

Heikin Ashi Charts

Heikin Ashi charts are a modification of traditional candlestick charts that aim to smooth out price action and highlight trends. Unlike standard candlestick charts, Heikin Ashi charts use a modified calculation for open, high, low, and close prices.

Interpretation: Heikin Ashi charts display a clearer trend than standard candlesticks. Long, consecutive bullish candles indicate a strong uptrend, while long, consecutive bearish candles indicate a strong downtrend. Doji-like candles suggest indecision or a potential reversal.
Binary Options Application: Heikin Ashi charts can be used to confirm trend direction before entering a binary options trade. A strong uptrend indicated by Heikin Ashi candles may prompt a "Call" option, while a strong downtrend could suggest a "Put" option.

Volume Profile Charts

Volume Profile charts display the distribution of volume at different price levels over a specified period. They create a histogram that shows the amount of trading activity at each price.

Interpretation: The Point of Control (POC) is the price level with the highest volume. Value Area High (VAH) and Value Area Low (VAL) define the price range where 70% of the volume was traded. These levels can act as support and resistance.
Binary Options Application: The POC, VAH, and VAL can be used to identify potential entry and exit points for binary options trades. A breakout above the VAH could signal a "Call" option, while a breakdown below the VAL could suggest a "Put" option.

Market Profile Charts

Market Profile charts are similar to Volume Profile charts but focus on time rather than volume. They display the amount of time the price spent at each level over a specified period.

Interpretation: Market Profile charts identify areas of acceptance and rejection. Similar to Volume Profile, they highlight the Value Area, Point of Control, and other key levels that can act as support and resistance.
Binary Options Application: Market Profile levels can be used to identify potential price targets and entry points for binary options trades. For example, the Point of Control might serve as a target for a profitable trade.

Comparing the Charts: A Table Summary

Comparison of Alternative Charting Methods
Chart Type	Focus	Time Sensitivity	Trend Identification	Best Use Case	Binary Options Application
Kagi	Price Reversals	No	Strong	Identifying clear trends	Confirming trend direction for "High" or "Low" options
Renko	Price Movements	No	Strong	Filtering noise, identifying breakouts	Identifying clear trend directions for "Call" or "Put" options
Point & Figure	Price Changes	No	Moderate	Support/Resistance, Pattern Recognition	Trading breakouts from established patterns
Three Line Break	Trend Reversals	Yes	Moderate	Identifying potential reversals	Identifying potential entry points for "Call" or "Put" options
Heikin Ashi	Smoothed Price Action	Yes	Strong	Clearer Trend Visualization	Confirming trend direction before entering a trade
Volume Profile	Volume Distribution	Yes	Moderate	Support/Resistance, Market Value	Identifying potential entry/exit points based on volume
Market Profile	Time Spent at Levels	Yes	Moderate	Areas of Acceptance/Rejection	Identifying potential price targets and entry points

Combining Alternative Charts with Other Analysis

It’s essential to remember that no single charting method is foolproof. The best approach is to combine alternative charts with other forms of technical analysis, such as moving averages, Relative Strength Index (RSI), MACD, Bollinger Bands, Fibonacci retracements and Elliott Wave Theory. Integrating these tools can provide a more robust and reliable trading signal. Furthermore, considering fundamental analysis and trading volume analysis can add another layer of confirmation.

Risk Management in Binary Options Trading

Regardless of the charting method used, effective risk management is crucial in binary options trading. Always use appropriate position sizing and never risk more than a small percentage of your trading capital on any single trade. Understand the payout structure of your binary options broker and factor that into your trading decisions. A comprehensive trading plan is essential for consistent profitability.

Conclusion

Alternative charting methods offer a valuable addition to any binary options trader’s toolkit. They provide unique perspectives on price action, helping to identify patterns and trends that might be missed using traditional charts. By understanding the strengths and weaknesses of each method and combining them with other forms of analysis, traders can improve their decision-making process and increase their chances of success. However, remember that these tools are not guaranteed to generate profits, and sound risk management practices are always essential. Continuously learning and adapting your trading strategy is key to navigating the dynamic world of binary options trading.

Start Trading Now

Register with IQ Option (Minimum deposit $10) Open an account with Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to get: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners