Trading Double Tops and Bottoms with Binary Options
Hello traders welcome to to Binary Option Strategies and the 10th module Trading Binary Options Using Price Action. In this lesson I’m going to teach you how to trade W Bottoms and M tops. But let’s start first by defining what these binaries are. M tops and W bottoms are reversal patterns that yield a very strong pattern trend setup. This means that we are going to find these patterns at the top of an up move or at the bottom of a down move, at very strong support and resistance zones.
Another name for these patterns are Double Tops and Double Bottoms. The idea behind this setup is that price trends up to an area of resistance, or trends down to an area of support and fails to break after two tests. The visual representation of price action is a letter M at resistance, and a letter W at support. This is why we call these patterns M tops and W bottoms. The pattern is complete when the neckline is broken. The neckline is the high of the retracement in a W Bottom and the lower the retracement in an M top, and we will only trade these patterns once the neckline is broken.
Let’s go through an example of an actual M top and an actual W bottom so you can better understand what I’m talking about. So we are going to start by a W bottom. As you can see, price is trending down and it has reached an area of support, it bounces back up and then we have the high of the retracement at a W bottom. Price retraces back to this high and then it tests again the area of support rejecting it. Now we have a neckline. This pattern will be complete once price breaks with this neckline and once price breaks with this neckline we’ll have a signal to buy a call options at a rejection of the support area and a reversal pattern.
You can see that right here price breaks strongly with this area of resistance, which is the high of the retracement at the W bottom and right here we have a signal to buy call options at the close of this candle. And as you can see one, two, three four candles later this option expires in the money when the momentum comes into the market and brings price up.
Now let’s go through an M top reversal pattern. You can see the price is moving up in a very strong up move then it retraces back down to this lows which means that we have an area of resistance that price rejected before retracing back to this low and you can see that price moves up again and rejects this again. Then we already know that this is the area of a resistance where the M top is going to be printed and this is the neckline, the bottom of the retracement.
Now we only have to wait for price to come back down and break with a neckline, once price breaks with a neckline we have a signal to buy put options and as you can see one, two, three four candles late this option also expires in the money. So basically this is what you are going to be looking for at the end of up moves, if price. . .if for example you are starting to look at price right here, okay? And you already know that this is a area of support, you are going to wait for price to to come back down here, test the area once, retrace back, test the area twice and then break with the neckline before you buy call options on a reversal play. The same thing goes with the M top. If you start looking at price right here, and you already know that this is a strong area of resistance, you are going to wait for price to come back up to this area of resistance, retrace to this low, retest the area of resistance, break the neckline for you to be able to buy put options on a reversal plane.