Patterns for Trading Analysis

Patterns for Trading AnalysisThere are a lot of key analysis tools that help you when placing binary options trades. By now you know some of the significance of them and how important they are to making trades that are profitable. One of the most useful forms of analysis for making trade decisions is those that analyze patterns. Let’s take a look at some of the more common patterns, which are the triangle, channel, parabolic and Bollinger band patterns. The importance of these key patterns in technical analysis should never be underestimated.

Triangles

Often when you are looking for patterns in analysis they are pretty easy to spot once you know what to look for; triangles are no different. Triangles are formed by the meeting of two trend lines, which are moving in one of three possible directions; upward, downward, or flat. Moving between these two trend lines will be the price of the asset.

Triangles on analysis charts can be one of three types; ascending, descending or symmetrical. All tringles are considered continuation patterns.

Symmetrical Triangles

There are a few characteristics of a symmetrical triangle. Symmetrical triangles are usually considered to form a consolidation period before the resumption of the current trend (breakout). Symmetrical triangle analysis usually gets its information for placing trades near the apex of the triangle.

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Ascending Triangle

Ascending triangles form when the current price movement is in a bullish trend. This often indicates that an asset price will once again continue higher after the consolidation period. These triangles are formed by the convergence of a flat resistance trend line and an ascending price trend line.

The price movement before an ascending triangle is normally in an upward direction, but on rare occasions it can be preceded by a downward trend.

Descending Triangle

A descending triangle will be the exact opposite of what an ascending triangle is. As you probably could have guessed it gives a bearish signal to the analyst. The price continuation in an ascending triangle after consolidation will be a downward trend. The descending triangle is formed by the convergence of a downward resistance line and a flat support line. It is normally a continuation pattern that is preceded by a downward trend, but again, on rare occasions it can follow an uptrend.

Parabolic Patterns

A parabolic pattern is one that usually indicates strong momentum based on market sympathy. At or near the apex it will often signal a trend reversal. These patterns often form when there is a rush buying or selling of an asset.

The tracing of its curved pattern is called a parabolic path. These patterns are often associated with price extremes. The analysis key to look for in a parabolic pattern is when a candle gets close to a 90 degree angle because it usually signals a trend reversal.

Channel Patterns

Channel patterns are simple to recognize and perhaps the easiest to use. They simply are the historical highs over a set period of time with a connecting line drawn through them that forms the upper or resistance part of the channel, and the historical lows over a set period of time with a connecting line drawn through them that forms the support or lower part of the channel.

The theory behind them is that price will move between the channel on all but the rarest occasions, so when an asset price nears the edges of a channel you should look for a price movement reversal and place your trades there.

Bollinger Bands

Bollinger Bands are a pattern that is said to represent price volatility. They are composed of a moving average line, and an upper and lower boundary line. The upper boundary line and the lower boundary are representative of standard deviations from the moving average. These standard deviations are sometimes known as bell curves. They are often described by using two numbers (example 15, 3); the first number represents the number of periods that the chart is based on and the second is the number the standard deviations are from the moving average.

Asset prices close to the boundaries of Bollinger bands will often indicate that the price movement is about to pause and then reverse its trend.

Getting to know these patterns and how they work is a key tool to making successful binary option trades.

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References and Further Reading:

1. STUDY OF IMPACT OF FOREX & FII (N Munshi – 2013)

2. Adventures of a Currency Trader: A Fable about Trading, Courage, and Doing the Right Thing (R Booker – 2010)

3. IN SEARCH OF IDENTITY: ISLAMIC FINANCE AND MUTUALITY (AG Brugnoni – 2012)

4. The End Of The Trend (C Luca – 2012)

5. FX Spot Trading and Risk Management from A Market Maker’s Perspective (M Yang – 2011)

John Miller
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John Miller

John has worked in investment banking for 10 years and is the main author at 7 Binary Options. He holds a Master's degree in Economics.
John Miller
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