In previous articles we have covered the topic of support and resistance analysis, which is important to all who trade binary options. Once S&R is understood, you’ll need to learn about key patterns which can provide you with even more in-depth analysis. The first step will be to select a time period for the price charts. The 30-minute period is most commonly chosen by those who day trade. Price action can take on many forms, displaying many different patterns. The most important of these patterns are listed below.
Triangles are the first pattern we’ll discuss. With these, you will see a wide gap between the low and high prices, and incrementally smaller ranges which lead up to virtually no difference in between the high and low. This action is illustrating to the trader that a breakout is highly likely to take place soon. You’ll discover several distinctive triangles, such as ascending, descending, and equilateral. Triangles act as traditional visualizations of a group of sentiment readings. The triangle is actually a compaction of the range between the highs and lows.
The price chart can be looked at as a fight between bullish and bearish market sentiment which is nearing a breakout point. The triangles are basically preludes to price breakouts. When observing a triangle, the trader should identify the strike prices that are outside of the triangle and enter into a trade based on the predicted breakout. Typically this move would be an OTM strategy or even a deep OTM strategy. We think about the triangle as a measuring instrument of emotions which clearly highlights the battle between buyers and sellers.
It will be up to you to distinguish when a triangle being produced and prepare yourself to enter into a trade. The ascending triangle is apt to break out heading upwards, resuming its ascending trend. The descending triangle is apt to break out moving downward, and then continue its trend down. In some cases you’ll discover a symmetrical triangle. This can move in any direction, which renders them less useful for binary options traders.
Next up is the parabolic pattern. This pattern is an occurrence of potent momentum and is driven by strong sentiment, particularly when it is forming an pinnacle. When this takes place, it is typically a sign of reversal. Whenever the parabolic is in its beginning phase, traders using at-the-money strategies are trading along with the momentum. The pattern got its name from the fact that it follows the appearance of a curved pathway referred to as a parabolic path. When this pattern is noticed, it is very possible that the asset price has reached an extreme. The pattern sets up whenever there is a surge of buying or selling in the market.
Extreme buying or selling usually transpires when traders see the chance to generate profit and fear missing out on the opportunity. At the level when the candlestick hits an angle of approximately 90 degrees, traders understand it cannot carry on indefinitely, so the asset price will temporarily stop and then many times reverse, enabling traders to profit from the movement. These are just two of the many price patters that can be used to trade binary options for consistent profits.