The financial market is full of common chart patterns and triangles are some of the most frequently seen. Although they are commonly used by forex and stock traders, they are also useful in binary options trading.When using a triangle pattern to take advantage of trends in the binary options market, a trader must be able to both identify the pattern and also identify the breakout.
A triangle pattern is formed when the trend lines which demarcate lows and highs of price action can be seen converging towards each other in an obvious triangular shape. There are three ways in which this convergence pattern may occur – the ascending triangle, descending triangle and the symmetrical triangle.
The Ascending Triangle can be seen with the horizontal line of the upper trend meets the lower trend line which is sloping upwards. This is a bullish continuation pattern which can be expected to produce a bullish break of the horizontal resistance following trading within the pattern’s trend lines. The ascending triangle pattern can be identified by its generally flat resistance level to the top and the lower side which slopes upwards as the prices attains higher lows.
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It is usually a signal of weakening resistance and indicates that a breakout may be approaching on the upside. The higher lows are an indication that the bulls are gaining in strength which represents a potential buying opportunity.When a trader observes this pattern appearing on their chart, they should be able to use it as a signal to trade. There are some key elements that enable traders to identify the ascending triangle pattern:
- The ascending triangle must be formed in an existing trend in order to be recognised as a continuation pattern.
- There has to be a top horizontal trend line with two or more relatively equal highs. There should be a reasonable distance between both highs and the low price between them.
- A lower ascending trend line must exist to form two reaction lows. A distance must exist between the two lows and these have to continue to increase higher throughout the progression of the trading day.
- This pattern must continue for a minimum of one to three months. If a price breakout to the upside occurs, trading volume should increase to confirm the breakout.
- There should be a return to the breakout with the horizontal line turning into support should the ascending triangle’s resistance line break.
Once the breakout takes place, the price projection can be determined by measuring the pattern’s largest distance and then adding it to the resistance breakout.
Using the Ascending Triangle Pattern for the Call/Put Strategy
If a trader observes and identifies an ascending triangle, they should check the chart to see if the price action makes an upward break from the upper trend line. If this is the case, they should then take it as an indicator that it is time to initiate a Call or Buy trade that has a suitable expiry time of a minimum of an hour or more. When the chart indicates areas where price action hits its highs, the chartist can draw a trend line to connect them, forming the ascending triangle’s upper horizontal boundary. The lows of the price action can also be joined with a second trend line, forming the base of the triangle’s ascending slope. Ultimately, the two lines will converge, but before this occurs, there will be a price action breakout from the upper boundary. Using standard breakout principles, traders should wait for the price action to break out and then to try to return to its broken trend line before initiating a Call or Buy order as the returning prices one more touch the broken trend line. Traders can use the chart’s time frame to determine how long the expiry time will be.
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