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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 chart patterns for Binary Options are important to recognize.

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. 

  • A continuation pattern indicates that the trend goes on in the same direction after a short pause;
  • A reversal pattern signals a change in trend direction.

Let’s review the most popular trend continuation patterns.

Trend continuation patterns for binary options trading

Trend Continuation Chart Patterns for Binary Options Trading

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. 

Trend Continuation Chart Patterns for Binary Options Trading

After a breakout of such a triangle, the price usually goes up, although a reverse movement might also be the case.

  • Wait for the first candlestick to close outside the upper line of the triangle. 
  • 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.

Trend Continuation Chart Patterns for Binary Options Trading
  • Wait for the first candlestick to close outside the bottom line in the downward direction. 
  • 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.

Trend Continuation Chart Patterns for Binary Options Trading
  • Wait for the candlestick to close outside the triangle. 
  • Open a trade in the direction of the price breakout.
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Flags

The flag 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.   

Trend Continuation Chart Patterns for Binary Options Trading
  • Enter the trade when a candlestick closes outside the triangle in the same direction as the “pole” candle.

Bearish flag

Similarly, the bearish flag begins with the red candle and confirms the downward movement after a short break. 

Trend Continuation Chart Patterns for Binary Options Trading
  • Enter the trade when a candlestick closes outside the triangle in the same direction as the “pole” candle.
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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.

Trend Continuation Chart Patterns for Binary Options Trading
Example of a bullish pennant
Trend Continuation Chart Patterns for Binary Options Trading
Example of a bearish pennant

Tip: patterns depend on momentum. Therefore, experienced traders do not recommend opening orders before the pattern is completely formed. If a pattern on the chart doesn’t look like a triangle or a flag, don’t take any action.

Summary

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 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. 

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3 Comments

  1. Shafi Khaliif agaade Reply

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