Make Money Trading Binary Options Using Triangles

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How to use “Triangles”

I hope you are doing well. In this article I will explain you how I use triangle patterns to confirm my binary options trades, especially when I want to trade with the trend. Let’s go to the first screenshot. It’s from USDCHF currency pair.

First of all, one basic thing in technical analysis and generally in trading which every trader should know it are trend lines. It’s very easy to draw a trend line. You need two tops or two bottoms and just connect them and you have very fast your trend line. As you can see in the screenshot, I connected two tops and I drew a trend line. A trend line can can acts as a resistance or a support. In this case, you can easily see that we are in a down trend. Notice the spot in which the price hit the trend line. It makes a reversal and we have a resistance. In an up trend we have the opposite condition. You should connect two bottoms and the trend line then acts as a support.

In the second screen shot you can see that we are again in a down trend. The price hit the trend line about two times and makes reversals. Notice, that we have lower- highs a sign of a down trend. Now, the important thing of the second screen shot is the blue box. In the blue box the price breaks the trend line and maybe this is is a sign of the end of the bearish trend and the beginning of a new bullish trend.

If you have two trend lines close to the same spot you can create a triangle. Take a look in the screen shot.

We have two trend lines now, one up and another one down. You could take trades inside the triangles because they are acting as support and resistance. When the price breaks the triangle(upwards or downwards) it’s a signal of a possible new trend for me or a signal that the price will go to this direction. You should be wait to see a clear break of the triangle and after that take your trades. Of course you should always have confirmation. I never take trades only by one signal. Many times, when I notice a clear trend I wait for a small reversal based on Fibonacci or Elliot Wave Theory and after the retracement I trade with the trend direction. Triangles and trend lines breaks give more confidence to my trades.

Trading Triangles with Binary Options

Video Transcription:

Hello traders! Welcome to Binary Options Strategy and the 10th module Trading Binary Options using Price Action. And in this lesson we are going to focus on triangles, and the cool thing about trading triangles is that once we have our true breakout, we are going to have a very high probability tray in our hands. That is if we do not chase the breakout, and if we are patient enough to wait for the actual breakout.

Now let’s start by defining what a triangle is. Triangles are contracting patterns in which we expect a breakout with momentum to either side. The idea of a triangle is that the range on which price is trading gets narrower and narrower over time contracting itself inside the pattern.

Now this means that at the beginning of the triangle, price is trading in a very wide range, and then this range contracts, and it makes for a very tiny range just waiting for an explosion to either side. And remember, that sometimes we can get a breakout with, but if we don’t have momentum to have this move follow through we are going to be trading a fake out, and we are going to be losing that trade. I’m going to show you how to avoid this fake out and how to trade true breakouts.

Now, there are a lot of type of triangles: There are symmetrical triangles which means that price is making higher lows and lower highs, there are flat on the top triangles which means that price is testing an area of resistance, but at the same time is making higher lows. And flats on the bottom which means that price is testing an area of support, but at the same time is making lower highs. Now, in any case that the strategy to trade triangles with binary options is the same, we are going to wait for the breakout, but there are some rules that we need to follow in order for us to be able to trade a true breakout.

This is why we are also going to use the volume indicator on our MT4 platform. And I’m going to show you how that looks like in just a second. Now, let’s take for example this price action right here. You can see that price is actually trading in a very wide range at the beginning. Then this range starts to contract and then it goes from narrower to… and then you can see that we are actually trading inside of our triangle.

Price is making lower highs, and at the same time it’s making higher lows. This means that we have a symmetrical triangle in our hands. Now, when price is trading inside of this triangle we are not going to trade. We are not going to trade, we are going to wait for a breakout and as you can see right here, this candle broke to the outside but we failed to close out above the triangle and price continued to trade inside of that pattern, and right here we have an actual breakout of the ascending support of the triangle, but we need a break of this low which is the previous low for us to be able to buy put options.

When this candle breaks with the previous low after price have broken with the pattern to the downside we are going to buy put options. And as you can see one, two, three, four, five candles later we have a winning trade. Now how can you avoid getting wiped on take outs just like this one? Well, you are going to be using the volume indicator on your MT4 platform which looks like this. Right here, you can see that the volume is very minimum. Even though we are in a very large range the volume is very, very minimum. The red bars are bearish volume or bearish orders, and the green bars are bullish orders.

You can see right here when we retest the top of the triangle we have a burst in a bearish volume, and we have an explosion in bearish volume all throughout the breakout of this triangles. So when you see this you can know for sure that we are going to break to the downside, and when we break to the downside and you see a surge in our red volume you are going to be trading the downside or the breakout to the downside of this triangle.

You are going to help your decision or you are going to base your decision not only on the actual breakout of the pattern, but also on the surge of volume which means that we will have momentum to the downside. If we don’t have volume, we are not going to be able to break, and follow through with the breakout.

More About Adam

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

Triangle Trading Strategy

The triangle trading strategy as far as binary options is concerned has to do with the use of the triangle chart patterns to create a strategy to trade the several binary options contracts available on the various trading platforms. In order to perform this accurately, we need to make the following considerations:

  1. The trader must be able to identify and trace the triangle patterns correctly.
  2. The triangle patterns can be used to trade different binary options contracts.
  3. All binary options trades must expire at some point, and the expiry times for each trade may either be set by the trader (on proprietary platforms) or must be chosen from several expiry times provided by the broker (turnkey platforms).

In order to trade the binary options contracts using the triangles patterns, we need to follow a sequence which will take care of the considerations listed above.

IDENTIFICATION AND TRACE OF THE TRIANGLE PATTERNS

Three triangle patterns have been identified in the financial market. These are:

  1. Symmetrical triangles
  2. Ascending triangles
  3. Descending triangles

However, proponents of the Elliot wave patterns system of analysis have discovered that apart from the three patterns mentioned above in which the trend lines that form the sides of the triangle usually converge, there is a triangle pattern in which the trend lines diverge from each other in a symmetrical fashion, and produces similar signals. In other words, a fourth triangle pattern exists which is the opposite of the symmetrical triangle. This is also known as the broadening triangle.

In order to identify a triangle, it is essential to first draw the trend lines that define the borders of such a triangle. A proper trend line must be shown to connect the highs of at least three candlesticks, and the lows of at least three candlesticks. These will now form the upper and lower borders of triangle, which will converge towards each other in the first three triangle types, or diverge from the apex in the broadening triangle. This process can be done manually. If you do not wish to do this manually, then you can subscribe to the Autochartist Chart Pattern Recognition tool which identifies and traces these patterns automatically. Manual traders can also use the web-based version of this tool to pick out possible triangle formations, then head over to their charts to identify and perform the traces with their line tool manually.

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BINARY OPTIONS TRADING WITH THE TRIANGLES

The following trade contracts on the various binary options platforms can be traded with the triangle patterns:

  1. Direction-based contracts such as the CALL/PUT options. Also known as UP/DOWN, RISE/FALL, ABOVE/BELOW. This contract is found on all binary options platforms.
  2. TOUCH/NO TOUCH options. This option is found on Binary.com and the Tech Financial platforms such as OptionFair and 24Option.

A symmetrical triangle has two sloping trend lines which converge towards each other somewhat symmetrically. There are two possible outcomes for a trade with the symmetrical triangle: the price action can either break to the upside or to the downside.

Usually the outcome is not known when the price action is within the boundaries of the triangle, so the trader must wait for the price action to break one of the two borders. It is the direction of the break that the trader must set his contract. We see in the chart below that the price broke the lower border, so the trade here is a PUT option.

An ascending triangle has a horizontal upper trend line and a lower trend line which ascends to meet it in an upward slope.

The bias for an ascending triangle is up, because price is expected to break out of the upper boundary of the triangle.

Thus with such an assured outcome, the trader should trade both a CALL option, as well as choose an area just above the upper trend line as the strike price for a TOUCH trade.

A broadening triangle has two sloping trend lines which diverge from each other.

Like the symmetrical triangle, the trader must allow the price action to break through one of the boundaries before setting a trade in that direction.

We can also see the area where the strike price for the TOUCH trade should be located.

The trader must allow the breakout to occur before setting the trade.

A descending triangle has a horizontal lower trend line and an upper trend line which converges towards it in a downward slope.

The price action is expected to break the lower trend line as price moves towards the apex of the triangle.

The trades here would be a PUT, as well as a TOUCH trade using the region immediately below the lower trend line as the strike area.

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