The Reversal Patterns – The Triangles
Reversal patterns indicate that the price is actually breaking in the opposite direction when we compared it to the trend that appeared previously before the pattern of consolidation and this occurs in the majority of cases when dealing with triangles.
As Elliot Waves has explained, many consider triangles to be the patterns that indicate the continuation or the reversal of the conditions. In this article we are dealing with the reversal conditions and traders need to take into consideration the action or the structure of the price before triangle is actually formed. In the case when this issue is corrective, the triangle might represent the end of double or even the triple combination and it is known that in these conditions triangles always break into the direction that is opposite.
EURUSD Triangle Trading – The Example
The videos from this article indicate to what the triangle is, how many legs it has and what can be expected from the given triangle. In this case, the most important line most definitely is the b-d trend line and in the moment when this happens a trader should attempt to buy call or put options.
The example shown here deals with the trading EURUSD pairs and only recently in the four hours chart we were able to have the price for making two triangles that contradict each other and that acted actually as the reversal pattern. Each time when one of these triangles has been broken, which means that the b-d trend line has actually been broken, the price never returned and that was the perfect moment for use to buy the put options. In the other example, the price is actually testing the b-d trend line once again and while these actions are actually the confirmation that the analysis has been properly done, the price does not have to do that. More details on this issue will be available in two videos that will be part of our educational series project.
Triangle Indicates that the Consolidation of the Market
It can be said that the triangle is the best indicator that the market is consolidating because in the situation when the market is actually consolidating, the triangle will be forming in the chart in front of us. In situations, when in Asian sessions, for example, the traders notice that the market is stagnating or rather that it is not moving it means that the triangle is forming or at least one of the triangle legs is appearing. These triangles can be contradicting or expanding. This, however, means that the a-c and the b-d trend lines are pointing to the direction of the common ground that will be located somewhere on the right side of our chart or that they will never meet on that side of the chart because they these trend lines are moving in two different directions.
Indication of the Complex Correction
When triangles work as the reversal patterns, they are basically located at the end of the very complex correction which on the other hand indicates that we should have the connective waves before the actual triangle. These connective waves actually make the connection between two simple corrections that appear and the last of those waves it is usually formed as the triangle.
The entire complex correction can be retraced and it all depends on what type of the triangle will appear. In turn, this indicates that the traders should make corrections to their date of expiration according to the every time frame in which the given triangle is being formed. What this, in essence, means is that traders should actually look for a trend and it does not matter whether that trend is bullish or bearish, and if that trend actually ends with the given triangle traders are facing a reverse.
The B-D Trend Shows the Right Price for the Strike
In that case, traders are faced with the question of what is the right time to find the perfect striking price. The answer to this question can be found in the b-d trend line and especially in cases when this trend line is the broker the market should go on and advance if the triangle appears at the end of the bearish or even the bullish trend. In the case when the triangle appears at the end of the bearish trend, the call options are the recommended for the trader while in the second option, when the triangle actually appears on the bullish trend, the recommended move are the put options. However, traders need to keep in mind that these types of triangles do not have the measured moves because these measure moves appear only when traders are able to take the element of time into the consideration which is not the case with these types of triangles. However, these triangles have something in common and that is the retesting of the b-d trend line that appears in all types of triangles.
That retesting of the b-d trend line is the striking price that the traders have been looking for the option of trading as the market will break the highs or the lows depending on the type of the triangle that is being formed. Occasionally, it also happens that these patterns or the complex corrections can form the corrective ways which means that these patterns should be followed by the impulsive moves also.
Impulsive Moves and Following the Triangle
Here is an example of that. After that kind of triangle has been formed, the impulsive move is most definitely coming and this fact indicates that in the moving market, the correction appears at the end of the second wave and before the third wave or at the end of the b wave and before c wave actually comes. The second possibility in this regard is the possibility in which these triangles are appearing as the legs of the contradicting triangle of higher scale and if this happens it means that the leg of that triangle will not be totally retracted.
However, in the case of binary options trading, it means that we should be able to see many movements that go in the right direction in order for the options to actually expire in the money. However, one pip that deals with the expiration above the striking price in call options or below the striking price input options should do what the intentions for that move were.
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References and Further Reading:
- Motivational styles in everyday life: A guide to reversal theory. (Apter, Michael J.)
- Magnetization reversal dynamics with submicron-scale coercivity variation in ferromagnetic films (Sug-Bong Choe and Sung-Chul Shin)
- Charts, Noise and Fundamentals in the London Foreign Exchange Market (Helen Allen and Mark P. Taylor)
- Magnetization reversal in Co/Pd multilayers with varying Co sublayer thickness (Sug-Bong Choe and Sung-Chul Shin)
- RECONSTRUCTING PLUMAGE EVOLUTION IN ORIOLES (ICTERUS): REPEATED CONVERGENCE AND REVERSAL IN PATTERNS (Kevin E. Omland1 and Scott M. Lanyon)