Triangles are one of the most commonly forming patterns on binary options trading analytical charts. There are three varieties of triangles which may appear: Descending, ascending and symmetrical. Although their formations may be similar for trading purposes, their appearances on the chart are different, but all three types are forms of continuation pattern.
In order to maximise profits, a successful investor must be able to identify, measure and correctly trade from the patterns that they observe. To do this with continuation triangle patterns, a trader needs to draw lines on their analytical chart in order to isolate the triangle from all of the other price information. Triangles have two lines – the supply or resistance line, which runs along the formation’s price highs, and the demand or support line, which runs along the formation’s price lows. To draw the lines, traders require a minimum of two reversal points to the low side and two to the high side. The lines will be drawn connecting the highs and lows and the price action will continue to unfold inside the pattern, with the lines assisting in identifying future reversal points.
A triangle continuation pattern can appear over any timeframe, whether on a monthly, weekly or daily chart. It is therefore possible for investors to look at all timeframes to observe triangle formations of various degrees, so a smaller triangle can appear on a short time frame, for example a 15 minute chart, which will be found inside a bigger triangle that appears on a daily chart. By spotting multiple patterns when they are drawn on analytical charts, traders are better able to identify the likely areas of strong resistance and support.
Triangles are horizontal trading patterns, with its widest point being at the beginning of its formation. As trade continues in a sideways formation, trading range will narrow, forming the triangle’s point. Basically, a triangle represents the losing of interest in an asset from buyers and sellers, with supply line diminishing in order to meet demand.
Ascending triangles are usually a bullish continuation pattern – easy to recognise in an uptrend and a clear signal for either an entry or an exit. Chartists look for the trading volume to increase as this is a clear indication that there will be new highs forming. Ascending triangle patterns generally take around 4 weeks to form and usually last 90 days or less. Usually, a trader will take a position when the price action has broken through the triangle’s top line with an increase in volume.
Descending triangles occur mainly in downtrends and are generally a bearish signal. Appearing as an upside down version of an ascending triangle pattern, the development of this formation takes around the same period as an ascending triangle, with volume once again playing a vital role in the breakout on the downside.
A symmetrical triangle is a continuation pattern than develops in a market that is primarily aimless and listless in its direction. Both lows and highs come together during this indecisive period in the triangle’s point with hardly any significant volume. Once a decision has been made however, the market will make a large move either up or down with increased volume when compared to the weeks or days before the breakout is experienced. Primarily, breakouts will occur in the same direction as the existing trend, but traders are advised to wait until a day or two following the breakout to ensure that the breakout is genuine. Traders should wait for a one day closing price that is above a bullish pattern’s trendline or below it in a bearish pattern. They should also look for volume at the breakout as confirmation as well as a closing price that is outside the trend line.
When trading triangle continuation patterns, traders can take the triangle’s height and either subtract or add it to or from the breakout price in order to obtain the price projection target. It is also best, when trading triangle formations, to place stops below or above the opposite trendline, and to ensure that the price projection target is bigger than the expected stop-loss price.
Triangle continuation patterns can be very profitable and are relatively simple to identify. They are also fairly simple to trade as they offer easy to find price targets as well as stop-loss prices.
Other educational articles
- What is the Dark Cover Candlestick Pattern?
- What is the Double Top and Double Bottom Pattern in Binary Options Trading?
- What are Japanese Candlesticks in Binary Options Trading?
- What is the Contracting Triangle Pattern in Binary Options Trading
- What are Impulsive Waves in Binary Options Trading?
- What are Corrective Waves in Binary Options Trading?
- Goumatianos, Nikitas, Ioannis Christou, and Peter Lindgren. “Intraday Business Model Strategies on Trading Markets: Comparing the performance of Price Pattern Recognition Methods.” Journal of Multi Business Model Innovation and Technology 2, no. 1 (2013).
- Thomsett, Michael C. A Technical Approach to Trend Analysis: Practical Trade Timing for Enhanced Profits. FT Press, 2015.