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In this post, we are going to learn about the different chart patterns that you can use to trade binary options trading: cup and handle, double tops and bottoms, triangles, flag and pennant, wedge, gaps.
Cup and Handle
Cup and handle is another one of the popular patterns chartists often look for. Unlike the head and shoulders, though, its a continuation pattern (meaning that it suggests the trend we were observing prior to the pattern will continue at the completion). What makes this pattern so special is that it predicts a pause in the price increase, or even a brief decrease. This is where many investors who are not familiar with the pattern are prone to making mistakes and faulty predictions.
Double Tops and Bottoms
Keeping up with the most popular patterns youre likely to see in a chart, double tops and bottoms is another spectacularly reliable reversal pattern. Like heads and shoulders, it signals that trend is about to go in the opposite direction. The chief characteristic of this pattern is that it forms after a stable trend. The genesis of the pattern begins when the price movement tests (which means that it tries to go beyond them but isnt able to break through) either the support or resistance (for double bottom and double top respectively). The pattern is very dependable and usually hints of mid to long-term trend reversals.
All of the patterns weve examined so far are well-known and reliable, making them the perfect tools for technical analysis. Triangles are no exception. There are three main types of triangles – symmetrical, ascending and descending. Each type is characterized with different properties and carries different implications, but they have one thing in common – their timeframe, which usually ranges from a few weeks to a few months.
Symmetrical triangles are by far the simplest of the bunch. They are preceded by a couple of trend lines that gradually approach one another until a breakout point in either upward or downright direction. Wherever the breakout is headed, we know we have a stable trend in that direction. The support and resistance serve as the sides of the triangle
Flag and Pennant
The basis of the flag and pennant chart patterns lies in the sudden price movement, which is then followed by a period of stability, only to be completed by another price movement is the same direction as the first one which signals of the emergence of a trend. Flag and pennant patterns are very short-term and rarely last most than three weeks. They are both continuation patterns.
Triple Tops and Bottoms
Triple tops and bottoms act in a very familiar manner. They closely resemble the double tops and bottoms even though they are much rarer. Like double tops and bottoms, triple tops and bottoms test the resistance or support. Unlike the double tops and bottoms, they do it three times instead of two (as the name suggests). Once again the prices cant break through which means a reversal of the preceding trend.
The confusing aspect of triple tops and bottoms is that it can closely resemble double tops and bottoms. An inexperienced chartist or analyst might be led to believe that the pattern is double top or bottom in the genesis of the pattern and make hasty decisions. This is why patience is the name of the game when it comes to these types of patterns. Precision is a very important component and this is where the analysts abilities and intuition come into play. He is either going to realize that the emerging pattern is a triple top or bottom or he wont. However, fear not, as with with experience you will learn to recognize them. Of course, we all make mistakes but this is just the risk of the job.
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