› Breakout Triangle Pattern Strategy - How It Works

Breakout Triangle Pattern Strategy - How It Works

Some binary options traders use technical indicators to determine the trend’s direction and find entry and exit points. However, the vast majority of them are lagging as mathematical formulas take into the account only past action. Some of the traders watch economic news and read headlines in order to predict perfect moments when an asset is moving in one direction, while the momentum is strong enough to continue the action. But it’s tough to forecast economic data, and fundamental events as most of them are complicated, having a multi-layer informational background. Moreover, sometimes markets print totally opposite reaction on macroeconomic data, and price move in the wrong direction, causing unexpected losses instead of profits.

That’s why the graphical analysis became so popular as it monitors just pure prices without any additional factors, which create complicated set-up and add many parts into the equation. The only instrument needed is a simple trendline, which can quickly be drawn on prices charts. All of the rules are understandable and clear, while chart patterns can be found with the first sight. Graphical analysis patterns are reliable and predictable as the market shows its intentions, talking to the traders on the language of price action. We’ll talk about triangle pattern today.

What is a Triangle Chart Pattern?

The main idea of any triangle on the chart is that the market consolidates power and momentum before accelerating triangle pattern trend. The fight between bulls and bears becomes tougher, while quotes remain in a specific range, which is narrowing though. That means that additional strength is created and when the explosion comes, assets could keep moving in one direction. Binary options traders know that those moments are perfect for maximising profits as all they need is just to click the same button, buying call options during the bullish breakout and put options during the bearish plunge.

The triangle pattern is a specific figure formed on the price chart, typically identified when the tops and the bottoms of the price action are moving toward each other like the sides of a triangle.

How to draw Triangle Pattern?

Before we show an example, we should explain that there are different types of triangles. Most popular ones are rectangular, meaning that a resistance or support line is horizontal, while the second part of the formation is ascending or descending triangle pattern. Some of the triangles are asymmetric, but they point instead to a continuation then breakout, and that price action might be comparatively gradual with many correction and retracements. Therefore, we’ll focus on rectangular triangles in this article.

As long as the nature of the price action is consolidation, one of the trendlines is horizontal. That happens when bulls or bears have several attempts to lift or push the price through particular defensive barrier or psychological price level but fail to do that. As a result, several pullbacks occur, when the markets chart a retracement to support/resistance of the narrowing range. It’s essential to keep the ascending nature of the support line and descending angle of the resistance. Otherwise, the triangle will be false. Traders can find triangles on all timeframes, and the expiration time depends on individual trading strategy as well as money management rules. We’ll focus on the 15-minutes timeframe as one of the most popular charts among binary options traders. As the underlying asset, we’ll pick up the USD/CHF currency pair as it’s vulnerable to the graphical analysis, while the number of false signals is comparatively low. An example below shows a descending rectangular triangle while working out as bearish breakthrough.

Breakout Triangle Pattern Strategy - How It Works

If you like this strategy, you might also be interested in this RSI Binary Options

How to use Triangle Chart Patterns

A crucial condition for any triangle pattern is that the price must test resistance and support lines at least four times, otherwise, the triangle could be fake. The more touch points we have, the more reliable the formation is. In our case, USD/CHF tested both lines nine times before the breakthrough happened. One more important condition is that the horizontal support line must be breached by close prices but not shadows of the candlesticks. There is an example of a fake breakthrough on the chart above. The vertical base of the triangle shows us the distance which quotes can go below the support line, therefore, we can easily calculate the quote when we should stop the trading cycle. The red arrow on the chart shows the perfect moment when we should start buying put options for USD/CHF as the price as the bearish spring breakthrough occurred. As a result, we got 16 candlesticks in the money out of 20, which is quite an efficient trading cycle with 80% of profitable deals.

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