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At minimum these patterns provide you with trade signals to get into potentially profitable trades.
Continuation patterns occur during a trend, and signal that the trend will continue once the pattern completes. Wait for the price to break out of the pattern, and trade in the breakout direction. All triangles are created by narrowing price action, so when you draw a border around it, it looks like a triangle.
Figure 1 shows a symmetric triangle, as the lines converge toward each other. With an ascending triangle, the upper line is horizontal, and the bottom line ascends toward it. With a descending triangle, the lower line is horizontal and the upper line descends toward it.
If you like to keep things simple, however, one type of method which may interest you is the use of price patterns. What is a price pattern? Using Candlestick Charts To Begin To Spot Price Patterns Over the years, traders have discovered that there are certain patterns price bars on a chart can make that tend to lead to specific outcomes. There are dozens of price patterns in existence that have been identified to be reliable in producing results.
Figure 1. A daily chart is used in this example, the same concept can be applied to other time frames though, such as a 1, 5, 15 minute or hourly chart. Time options trades to accommodate for this.
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Flags and Pennants These formations get their name from a sharp price move, the pole, followed by either a small channel like correction which looks like binary options all pattern flag, or a small triangle which looks like a pennant. Pennants have converging price action similar to triangles discussed in the prior section. For trading purposes, the method for trading them is the same.
Psychology of Trading For double top, we observe that the price attempts to break the resistance two times, and is both times unsuccessful look at the example below.
Figure 2 shows a pennant occurring in a move higher, and two flags occurring during a decline. Whether these formations occur on a daily chart, or a 5 minute chart, it is typically explosive.
Trades generally do not last very long. Trade the breakout and look for another set-up.
You simply want to take advantage of any remaining momentum left after the sharp move and a pause. Draw the pattern once 4 bars of price data are present not including the pole. If you draw it before this, you are more likely to get false breakout signals.
Figure 2. For binary options all pattern, if we were to compare trades, my breakout price may be a bit different than your breakout price just because there is a slight discrepancy in where we put our lines.
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The real world rarely provides markets that move within exact confines. Final Word Continuation patterns which include triangles, flags and pennants occur quite often on all time frames.
Triangles require some patience to allow the pattern to form, and ultimately for the price to breakout. Chart patterns are always somewhat subjective.
Before you commit money to trading these patterns take some time to practice spotting, drawing and trading them in a demo account. Top Brokers.