Chart pattern recognition is at the core of technical analysis practices, and it is the key to understanding the binary options market. Their purpose is to point at the major market moves and connect different market phases: uptrend, downtrend, and sideways markets. This is why it’s so important to learn how to find binary trading chart patterns.
There are many charting patterns for analyzing financial markets, but the simplest ones work best for binary options trading. You can use them as a standalone trading strategy or back them with technical analysis indicators.
What is a chart pattern?
After many years of monitoring the market, people noticed that it moves in repetitive patterns. They are clearly seen on the charts and can be used to predict further price movement. Some patterns indicate a trend reversal, and other patterns indicate a continuation.
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A reversal pattern signals a change in trend direction.
Let’s review the most popular trend continuation patterns.
Binary trading chart patterns for trend continuation
There are many binary options chart patterns you can look for as a part of your strategy. Let’s take a look at the most basic patterns and their trading signals to get started.
1. Triangles
A triangle is a pattern formed in a financial market when the price “doesn’t know” which direction to move in. When you see this pattern, you know there’s a confrontation going on between bulls and bears.
There are several types of triangles:
Ascending triangle
An ascending triangle is pointed upwards after drawing the trend lines on the minimums and maximums. In this case, the upper resistance line for the price is usually horizontal or slightly upward.
With this binary trading pattern, after a breakout of such a triangle, the price usually goes up. However, a reverse movement might also be the case.
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Open a trade in the direction of the price breakout.
Descending triangle
A descending triangle works similarly to an ascending triangle, with the difference that it is directed downward. The lower resistance line is usually horizontal or directed downward. The breakout of such triangles mainly occurs in the downward direction.
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Open a trade in the direction of the price breakout.
Symmetrical triangle
A symmetrical triangle is horizontal, the trend lines of such triangles are directed towards its center. The breakout usually occurs in the direction of the trend prior to the formation of the triangle.
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Open a trade in the direction of the price breakout.
2. Flags
The flag binary options chart pattern occurs after a sharp price movement in any direction followed by a short period of stability. After that, another price movement happens in the same direction, continuing the trend. Visually, it resembles a flag (a rectangle) with a flagpole.
Bullish flag
The bullish flag pattern starts with a big green candle (the pole) followed by the rectangular “flag”. Then, the breakout in the upward direction happens, confirming the bullish trend.
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Bearish flag
Similarly, the bearish flag begins with the red candle and confirms the downward movement after a short break.
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3. Pennants
Essentially, pennants work just like flags: they also start with a bearish or bullish “pole” candle, but their “flag” is not a rectangle but a triangle or wedge. Other than that, there are no differences in readings.
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Summary
Binary trading chart patterns help understand the logic of the binary options market. It is important to note that there’s no 100% chance that a certain pattern will work out for you, but it is high enough to use the patterns in trading.
Finding these binary options chart patterns on the chart might be challenging at first, but it will get easier as you practice. Make use of the Practice balance and learn to apply graphical tools to find them quicker. Over time, you’ll start seeing them with the naked eye, and the overall decision-making process will get a whole lot easier.
