Binary options – strategy of the triangle’s breaking

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Contents

Binary options – strategy of the triangle’s breaking

The more I analyse investment’s strategies and systems, the more I realize that in order to invest with binary options, more than with trading, it’s important to make a good technical analysis to understand how the market is moving. To do this it’s necessary a training in the graphs’ reading.

Reading a candlesticks graphs is somehow like reading a book in which you cannot imagine what is going to happen except in some cases in which the plot seems directed towards a precise direction. The ability of a trader is being able to read between the lines and identify in some cases what is going to happen.

After this short analogy, I’ll show you that the strategy we are facing today will seem more clear and understandable to you.

Let’s take a candlesticks graph with 1 minute time-frame. Taken? Well! Now let’s watch it. The signal we are looking for is the forming of a triangle, like showed in the two following figures:

In both figures we identified a pattern generating a triangle. In the first one the basis of the triangle is a resistance and in the second one it’s a support. In both cases we had at least two evident attempts before breaking the level (resistance or support). The green point shows the moment in which you should invest, in case of breaking of a resistance with a SU binary option and in case of a support’s breaking with a GIU binary option.

This time however, despite the graph’s timeframe is 1 minute, the expiration we will choose will be of at least 20 minutes.

So, it isn’t necessary to use a broker offering turbo binary options, you can also use a good broker allowing to invest in standard binary options, with expiration after 15 or 30 minutes, 1 hour and so on. We will choose the expiration nearest to 20 minutes.

Recommended brokers for this type of strategy:

If we see that the next expiration of the asset for which we identified this configuration is 15 minutes, we take the immediately following one. On the contrary if we see that the next expiration is 23 minutes, we can take that one.

It’s useless to say that this pattern can become a still more precise signal, enriching the graph in a suitable way with oscillators, bands and other technical analysis’ tools. Everyone of us should find the most suitable tool to optimize his/her results. It would be beautiful if you published your results and configurations in the comments’ area here under.

What you should know is that this pattern can be very useful and if you manage to identify it, it would be very helpful for you.

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Like all strategies, it cannot ensure a continuous success, it depends a lot from the macro-economic situations in which we are. So, it’s also important to pay attention to the economic calendar, in order to avoid trading in presence of macro-economic news that could substantially affect the interested assets.

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7 Binary Options

Triangles are very frequent pattern in general, and contracting triangles as part of it as well, especially in the binary options market.

The main reason behind is the theory of the over 60% consolidation period the market spends in, and the triangle is one of the forms it usually takes on.

Triangles- Contracting and Expanding

Contracting triangles are far more common than extending triangles, which can be even considered a real rarity in the market and that is why we are going to focus our attention only on the contracting triangles right now since chances are you will encounter a contracting triangle soon enough, and you might need to know few tricks.

The videos accompanying this article feature an example of the USDCAD chart that contains two contracting triangles. One triangle is a clear continuation pattern which is simply indicated by the price movement since it continues to travel the direction it traveled before the consolidation period. The other triangle is a reverse pattern or a wedge, and it means that the price changed its traveling direction after consolidation or the triangle formed.

The B-D trend Line and Its Significance

In both contracting triangles from above, the b-d trend line is decisive, since when that trend line is broken, we can say that the pattern is completed which further indicates looking for placing call options if the formation ended up in a continuous pattern, and that put options should be placed if the triangle appears to look like a reversal pattern preceded by a bearish trend.

The triangles consist of 5 legs exactly, and all of them are marked with letters from a to e (a-b-c-d-e). It can happen that the triangle appears to have more branches than the five legs which is an indication that one of the substantial legs is subdividing at a lower level. This is the case usually with wave e when it forms a triangle on its own of a lower degree. The important thing is that the five legs are still there and have the same significance even after a leg has its own sub-triangle. The five legs can help traders a big deal to achieve the desired trading results.

The Relation of the Expiry Period to the Contracting Triangle

It can get a little complicated when selecting the expiry period based on a contracting triangle since it involves many factors. First of all, the stage in which the triangle is at that moment has to be observed as well as the timeframe on which the triangle forms. The expiry period is not only related to the timeframe and stage of the triangle, but also the striking price should be observed.

Discover the Ideal Striking Price with Fibonacci

When we have a contracting triangle, we can use the Fibonacci tool to find our striking price by measuring the longest triangle’s leg, which is usually an a or b wave. Draw a horizontal line when you find a 50% retracement level. If we are dealing with a bullish triangle after a rising trend, it is more likely to break higher than to turn into a reverse pattern.

When we have such a situation, call options should be placed after splitting the 50% distance into two and before the price has moved into the new lower part.

Expiry periods should follow the timeframes on which the triangles form. For example, if the triangle appears on a daily chart, then we know that a daily expiry period might not cut it and that a week-long expiry would be better here, as well as a monthly expiry date sometimes.

Triangles in the Eyes of Elliot Waves

Contracting triangles is quite a frequent strategy, and they appear in different places on the chart according to Elliot. What traders need to know is that the triangle appears between two trend lines, like the famous a-c or b-d trend lines. We have already talked about the importance of the b-d trend line whose breaking indicates that the triangle is fully formed and that the price already travels to make new patterns.

The break of a contracting triangle, whether as a continuation or reverse pattern clearly shows and indicates strong movements in the market after a consolidation period ended. Traders know when this triangle is broken, that something big is happening in the market. It could be the release of the important economic news, or just a change of the supply-demand chain, etc.

Triangles take the shape of simple correction waves, mostly zigzag or a b wave, but they can also be formed by the fourth wave when we are dealing with an impulsive move or act as a part of a complex structure. When a triangle is part of a more complex structure or correction, it takes the role of a connective wave or the x wave, or it simply appears at the end of the complex structure.

The major secret of contracting triangles is their breaking through by observing the b-d trend line. Once it is broken, we can tell for sure that the market has moved onto forming a new pattern.

Contracting triangles have their periods when they appear, and for most of the time, it is when the market is more silent, during the trading sessions which are not that liquid and the market is not moving. This is not a surprise since we are talking about triangles which appear during consolidation periods.

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