Experts recognise that expanding triangles are one of the most difficult patterns to spot in binary options trading. Nevertheless, being able to identify one of these tricky triangle types can help investors to achieve great success in their trade execution.
An expanding triangle may go by other names, including a “megaphone top” or “broadening top”. Identifying expanding triangles is not simple, but at least they all have a single common characteristic – its a-c trend line will generally be broken by its e wave. The e wave should also be the longest as well as the most time consuming. There are, however, possible variations. For example, some expanding triangles will end either lower or higher than their starting point, still they are considered to be expanding triangles as long as the a-c and b-d trend lines show that they are expanding.
Expanding triangles are a very powerful pattern that can either be a bearish or bullish continuation trend pattern or reversal pattern depending on its background. Visually, this pattern can be recognised by its series of lower lows and higher highs, its shape being altered by the angle of the ascending line of resistance and the slope of the descending line of support which incline away from each other. The pattern may appear to be tilted or even right angled. This pattern will begin with the price action being tightly squeezed in the apex, with the price action swing from high to low widening as the pattern develops.
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An expanding triangle can vary in its duration, however they are often very large. They will always have a minimum of two swing lows and two swing highs in their price. As the pattern develops, the overall volume will usually diminish as traders become more indecisive as to the future direction of the market. Eventually, the asset price will break through the immediate price range that is outlined by the extensions of resistance and support.
The Rules for Identifying an Expanding Triangle
To be certain that the pattern observed in an analytical chart is definitely an expanding triangle, it must adhere to all of the following rules:
- All five of its waves must be either triple, double or single Zigzag patterns.
- The B wave should be shorter by price than the C wave, however it should be more than 40% of the C wave by price.
- The waves labelled A, B, C and D should move either within or almost within the B-D and A-C channel lines.
- Wave D must be longer than Wave C by price, however it must be more than 40% of the D wave by price.
- The wave labelled A should move either within or almost within the A-C channel line.
- The channel lines must intersect before the start of Wave A.
- Its channel lines cannot be parallel and must diverge.
- Neither of the channel lines can be horizontal.
- Wave D must be shorter than Wave E, however it must be under 40% of Wave E by price.
- Either the B or A waves should be the shortest of the waves by price.
- The wave labelled E should end in wave A’s price territory.
- Wave E should move either within or almost within the B-D channel line.
How to Trade an Expanding Triangle
Expanding triangles can be risky to trade however there are two ways of trading the expanding triangle when it is a bullish continuation pattern depending on whether you are an aggressive or conservative trader. An aggressive trader can enter their trade around the support trendline once enough support has been confirmed, although they should monitor the lines of support and resistance carefully to anticipate any price swing extensions. On the other hand, a conservative trader can enter their trade once the upper line of resistance has been broken or a new breakout has been confirmed.
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