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The Triangle Strategy

May 30, 2016

The Triangle Strategy

Graphic charting patterns can greatly help the Binary Options trader to predict price movement. Some of them support the continuation of the current movement, some point out a trend reversal. One of the most popular chart patterns is the triangle. In this article, we will consider the strategy with the same name, which is based on this pattern.

But, first of all, let us focus on the types of triangles that can be found in the market, in order to understand how they are formed, and what to expect from the price movement. There are 4 main types of triangles: ascending, descending, symmetrical and diverging. The first two, as their name suggests, are formed in a bullish or bearish trend, and signal us to continue the movement.

The descending triangle is formed by the horizontal support line, and the resistance line leading down. This suggests that price fluctuations are reduced, which means traders who were opening long positions, are no longer able to bring the price to the last peak. This means that sellers are in full control of the situation, and as soon as the price breaks the pattern down, it will continue in that direction.

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With the ascending triangle, the opposite is true: there the resistance line stays horizontal at this time, and the support is a rising line. At its core, this support is the trend line or the lower boundary of the rising channel. This figure is a graphic indication of the continuation of the upward trend, so traders need to prepare for the Call option.

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The next type is the symmetrical triangle – it is specific with the fact that both support and resistance lines incline and converge. This figure is neutral, although practice shows that often, after breaking the trend, the price keeps going in the same direction as before the formation of the triangle.

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And the last type of triangle is the broadening triangle. Both the resistance and support lines go in different directions, thereby increasing the price range way. The figure also applies to neutral, and until the price is not yet moved beyond the triangle, it is not recommended to buy an option. It is better to wait for the breakdown, and then enter the market based on the new direction.

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Call option

The Call option will be considered in two cases. First – if we see the formation of an ascending triangle in an uptrend. Then, we are waiting for its break and after the candlestick closed above the resistance level, buy the Call option. To lower risks, you can wait for the closing of one more candlestick above the resistance level. This will not only give an opportunity to ensure that the pattern is completely behind, but also enter the market at a better price, because, as practice shows, after breaking through the triangle, the price tends to return to the upper boundary of the pattern.

The second option for Call option will be related to the breakout of the symmetrical or broadening triangle in upward direction. The conditions for buying the option are the same, which means you should wait for once or two candlesticks to close above the resistance level.

Put Option

In a similar way, there are two entry points with the Put option. The first time, we are closely monitoring the descending triangle and its downward trend, preparing to enter the market with a Put option right after the close of the candlestick below the support line. If we see in the chart a broadening or a symmetrical triangle, buy the Put option once the price broke the pattern downwards, after the close of the first or the second bearish candlestick below the support level.

Expiry Time

As practice shows, the best time of the expiration of your option should be the time-frame in which the triangle was formed and multiplied by two. That is, if we monitor an ascending or descending triangle on a M15 chart, the Expiry Time should be 30 minutes.