Trading Triangles with Binary Options
Hello traders! Welcome to Binary Options Strategy and the 10th module Trading Binary Options using Price Action. And in this lesson we are going to focus on triangles, and the cool thing about trading triangles is that once we have our true breakout, we are going to have a very high probability tray in our hands. That is if we do not chase the breakout, and if we are patient enough to wait for the actual breakout.
Now let’s start by defining what a triangle is. Triangles are contracting patterns in which we expect a breakout with momentum to either side. The idea of a triangle is that the range on which price is trading gets narrower and narrower over time contracting itself inside the pattern.
Now this means that at the beginning of the triangle, price is trading in a very wide range, and then this range contracts, and it makes for a very tiny range just waiting for an explosion to either side. And remember, that sometimes we can get a breakout with, but if we don’t have momentum to have this move follow through we are going to be trading a fake out, and we are going to be losing that trade. I’m going to show you how to avoid this fake out and how to trade true breakouts.
Now, there are a lot of type of triangles: There are symmetrical triangles which means that price is making higher lows and lower highs, there are flat on the top triangles which means that price is testing an area of resistance, but at the same time is making higher lows. And flats on the bottom which means that price is testing an area of support, but at the same time is making lower highs. Now, in any case that the strategy to trade triangles with binary options is the same, we are going to wait for the breakout, but there are some rules that we need to follow in order for us to be able to trade a true breakout.
This is why we are also going to use the volume indicator on our MT4 platform. And I’m going to show you how that looks like in just a second. Now, let’s take for example this price action right here. You can see that price is actually trading in a very wide range at the beginning. Then this range starts to contract and then it goes from narrower to… and then you can see that we are actually trading inside of our triangle.
Price is making lower highs, and at the same time it’s making higher lows. This means that we have a symmetrical triangle in our hands. Now, when price is trading inside of this triangle we are not going to trade. We are not going to trade, we are going to wait for a breakout and as you can see right here, this candle broke to the outside but we failed to close out above the triangle and price continued to trade inside of that pattern, and right here we have an actual breakout of the ascending support of the triangle, but we need a break of this low which is the previous low for us to be able to buy put options.
When this candle breaks with the previous low after price have broken with the pattern to the downside we are going to buy put options. And as you can see one, two, three, four, five candles later we have a winning trade. Now how can you avoid getting wiped on take outs just like this one? Well, you are going to be using the volume indicator on your MT4 platform which looks like this. Right here, you can see that the volume is very minimum. Even though we are in a very large range the volume is very, very minimum. The red bars are bearish volume or bearish orders, and the green bars are bullish orders.
You can see right here when we retest the top of the triangle we have a burst in a bearish volume, and we have an explosion in bearish volume all throughout the breakout of this triangles. So when you see this you can know for sure that we are going to break to the downside, and when we break to the downside and you see a surge in our red volume you are going to be trading the downside or the breakout to the downside of this triangle.
You are going to help your decision or you are going to base your decision not only on the actual breakout of the pattern, but also on the surge of volume which means that we will have momentum to the downside. If we don’t have volume, we are not going to be able to break, and follow through with the breakout.