When dealing in binary options trading, time and price are the two elements with greatest importance. Therefore, traders must include both the price target and the time element in the same analysis if they are binary options trading. Wedges meet these requirements. A wedge is a 5-wave structure which is labelled with numbers e.g. 1-2-3-4-5. Wedges have a lot of applications in trading in general, but are especially useful in binary options trading. A wedge pattern indicates a reversal of the currently formed trend and suggests to the trader that they should trade the reversal of the market trend and not the market’s overall trend. A wedge can be found either at the end or at the middle of the moves. Prices get pushed quickly in one directions when they contract inside the wedge and in this case, traders can make more profit.
What are Falling and Rising Wedges?
There are two vital chart patterns – the falling wedge and the rising wedge, indicating either the continuation or reversal of a trend in the market. Having a clear grasp of these patterns enables a trader to enjoy success in binary options trading.
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Falling wedges are bullish patterns which occur at the end of a downward trend. These patterns develop if the price of security forms lower lows and highs and can be found in both the downtrend and uptrend. Should the pattern be created following an extended price decline, traders can expect to see a reversal in trends and when it is created during a ride in prices, traders will see a continuation in the uptrend. There are rules which apply to falling wedge formation: These wedges must form over at least three weeks and must have at least 5 unique price points. Like the risijg wedge pattern, when the trend line breaks, volume rises, and the pattern’s highest price is the first target price following breakout.
How to Trade Binary Options With a Rising Wedge Pattern
Immediately a price breaks below the lower boundary, a trader can purchase either an hour, thirty minute or one minute put options contract. As the price breaks below the trend line after over three weeks, the chance of immediate reversal is negligible. Traders should therefore not take a position before the pattern has been accomplished. Only once the rise in volume after the breakdown of support level has been confirmed should they buy a put options contract. Here are the put options choices available.
One Touch Put Option
If the probably target price is lower than the set price target, a broker should purchase a one touch put option.
Double One Touch Put Option
Should the atmosphere suggest a major impact news announcement, the trader could buy a double one touch put option, however this should only be considered as a last resort.
No Touch Put Option
Should prices break below the rising pattern’s lower trend line, a trader should purchase a No Touch Put Option. This contract can be bought safely once the price has broken below the support level.
Double No Touch Put Option
A Double No Touch Put Option could be considered if there is no increase in volume when the price has broken below the support level without any indicator of an imminet major impact news release.
How to Trade Binary Options With a Falling Wedge Pattern
With the same characterstics as a rising wedge pattern, the difference with a falling wedge pattern is that the price has broken down above the upper trend line and acts as resistance. Once the price has broken below support level, traders can buy either an hour, 30 minute or a one minute call options contract. However, there are other options such as the No Touch Call Option, the One Touch Call Option, the Double No Touch Call Option and the Double One Touch Call Option. A falling wedge’s probably target price is the pattern’s highest price. If a trader has a strong knowledge of both falling and rising wedge patterns, they can prepare for any impending price movement and take advantage of them to make a profit.
Other educational articles
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- Japanese Candlestick Formations – Bullish And Bearish Engulfing Patterns
- Fibonacci Retracements To Identify Potential Reversal Levels
- Ascending Triangle Strategy In Binary Options
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- Continuation Patterns And Pennants In Binary Options Trading