Trading the Apex of a Triangle

Trading the Apex of a TriangleAs has been stated before, corrective wave analysis can be very important when trading binary options. When looking at a corrective wave that contains a contracting triangle to make a trade, you must note the importance of its apex. Let’s start this discussion by identifying exactly what an apex is as it pertains to a contracting triangle.

To start with, it must be mentioned that apexes can only be referred to on contracting triangles. The apex is simply where two trend lines meet to define and form the triangle: these are typically the b-d and a-c trend lines. The reason you would never want to look for an apex on an expanding triangle is because these same a-c and b-d lines will never meet.

When you identify a contracting triangle after it is finished (this is where the price is no longer in the range), you will next look for the measured move. The measured move becomes important because it will help you to confirm that the new triangular formation was actually real. Review the section on measured moves if you have forgotten how they are identified and how they work.

Once the contracting triangle is complete, you will still be able to find value and that will be in the apex of the triangle. To correctly identify the apex, the trader should first extend the b-d and a-c trend lines until they meet, then next it is appropriate to draw a line that is horizontal to mark the level.

The theory behind this is that the apex represents the support/resistance point of the future price action. It is important to note that the longer the time frame, the more strength is to be found in the support or resistance of that particular apex.

This should give you a pretty good idea of how to find an apex when using corrective waves that have contracting triangles.

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References and Further Reading:

1. Forward Exchange Rate Biasedness Across Developed and Developing Country Currencies: Do Observed Patterns Persist Out of Sample? (BM Lucey, G Loring – 2012)

2. PredicForex. A tool for a reliable market. Playing with currencies. (JA Collar, RGC Toba, CC Velasco – 2009)

3. Applying induced aggregation operator in designing intelligent monitoring system for financial market (B Fonooni, S Moghadam – 2009)

4. Noise Filtering of Foreign Exchange Data (D Bailey, G Moretti – 2014)

5. Dynamic Investment Portfolio Optimization under Constraints in the Financial Market with Regime Switching using Model Predictive Control (V Dombrovskii, T Obyedko – 2014)

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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