The following binary options strategy can be used to trade breakouts. Those who choose to use this strategy will want to have some previous experience with technical analysis, particularly candlestick charts. Some knowledge of support and resistance will also be beneficial, as this strategy is linked to S&R within the markets. At a base level, the goal will be to identify areas where asset prices come together and form a distinct triangle shape within a technical chart.
The following are the three types of triangle patters that traders need to be aware of:
Ascending: This pattern will be displayed within a price chart along with a side-to-side trend line cross next to an ascending trend line. The shape is formed when higher low prices come in contact with a level of resistance. This triangle pattern works to show a price breakout on the upward trend.
When you see this pattern within your chosen price chart, you will know that asset demand is gaining strength and that the level of resistance will at some point be broken through. When this occurs, the next step would be to purchase a Call option when the price is close to, or slightly higher than the level of resistance. Doing so will allow you to take advantage of the asset price breakout when it does occur, as an ascending trend is very likely.
Descending: This pattern is the result of a number of of lower highs converging in direct opposition to a level of support. The descending triangle shows that the level of supply is gaining ground in opposition to the level of demand.
When this pattern sets up within a price chart, a Put option would be purchased close to, or at the level of support. Once again, the trade would be based on a breakout, as a descending trend is likely to begin.
Symmetrical: The shape is the direct result of indecision on the part of investors within the marketplace. Here, neither supply or demand are winning the battle, which means that no distinct price trend in either direction is in place.
With this type of triangle, asset prices may move in either direction. Since accurate prediction will be tough, it is best to not trade on this pattern unless some additional form of analysis is used to confirm the upcoming direction of price movement. In truth, additional analysis is recommended with all three of these patterns, as extra verification makes for more profitable trading. Higher success rates are often associated with the use of more than one indicator.
Trade decisions will be based on the type of pattern that is being presented. There will be times when the triangle binary options strategy allows you to plan out trades well in advance. Any candlestick chart can be used to carry out this strategy, but the basics of reading candlesticks should be mastered before trying to use this method. Once you are able to quickly identify each of these patterns, this strategy will be extremely easy to execute.