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When participating in binary options trading, the correct technical analysis of corrective waves is essential in executing a successful trade. One of the important aspects of corrective waves that you need to consider when doing your analysis is to observe whether or not they contain a contracting triangle. If this is the case, before making a trade you have to be aware of how important its apex is to achieving success.
So what precisely is the apex of a contracting triangle, as it is vital to fully understand this term. Firstly, it is only possible to find an apex on a contracting type of triangle and not on other types. The apex refers to the point where the 2 trend lines connect, defining and forming the triangular shape. These are usually the A-C and B-D trend lines. It is impossible to find an apex on an expanding triangle as the B-D and A-C trend lines on this triangle type can never meet at any point.
Looking for the Measured Move
When a contracting triangle is identifying after it is finished and its price is no longer within range, the investor looks for a measured move. This is important as it assists the trader in achieving confirmation that it was actually a genuine triangular formation. Having been completed, the contracting triangle still enables the trader to find value and this is by looking at the triangle’s apex point. In order to identify the apex correctly, the trader must initially extend the A-C and B-D trend lines until they reach their meeting point. They must then draw a horizontal line that marks this level.
The theory behind doing this is that the apex point is representative of the resistance and support points of any future price action. Traders should be aware that in a longer time frame, there is more strength to be found in the resistance or support of the apex.
Best Ways to Trade the Apex
Although the idea of the apex may appear to be strange, it is useful for giving traders a wealth of information as long as it is properly drawn. If the triangle is appearing as a B wave or a 4th wave, it is important to make the trend lines as clean as possible as the market must retrace back to the triangle’s end point.
If the triangle observed in the technical charts is a bullish one, the trader should consider purchasing call options by the time the apex area is coming into play for the first time. Conversely, if the triangle is a bearish one, the investor should think about buying put options. It is important to align the expiry date of the option with the time frame of the market in which the triangle is forming. The larger the timeframe, the longer the expiry date needed.
If the triangular pattern forms at the end of a complex correction, usually the trend lines are not clean and this indicates that the apex will not be as important in this case. Complex corrections are rather difficult as they may or may not be reversible and in the case of a reversible connection, the apedx will give neither resistance or support.
After the trader has identified the triangle’s apex, they should draw a vertical line through it to form a visual point and measured move in time that will indicate the thrust of the triangle that will follow. If the triangle’s thrust fails to form and the price exceeds that timeframe, the analysis must be incorrect.
There are many situations when using Elliott Waves Theory in which time is an important factor when trading and this is certainly the case when trading the apex of a triangle. Although the triangular pattern is usually only visible after the fact, it is important to know the direction in which the market will go following the break of the triangle and where the ideal striking price is likely to be. This information can all be gleaned from a triangle’s apex.
Other educational articles:
- Reversal Patterns Triangles Trading Strategy
- What is the Dark Cover Candlestick Pattern?
- Triangles as Continuation Patterns in Binary Options Trading
- What is the Zig Zag Indicator in Binary Options Trading?
- What is the Trend Following Binary Options Trading Strategy?
- Use the Straddle Strategy for a Possible Put and Call Double-Win
Recommended readings:
- Trading Price Action Reversals, Al Brooks
- Understanding the market, part 1, Xiaoguang Wang, President, Purdue Quantitative Finance Club
- Forex forecasting, University of Pennsylvania, Finance Department
