This is one of the most incredibly powerful trading strategies in binary options using simple trend lines that show support and resistance levels. If you are somewhat haunted by strategies like Stochastic Oscillator or Bollinger Bands or RSI or MACD, you can opt for this strategy. Still, you need to remember that despite its simplicity, risks are never ruled out. So, make sure that you stick to capital drawdown advice and invest no more than 2% of your account balance in a single trade. Never get greedy!
What is a descending triangle?
A descending triangle is formed when we have a downward sloping trend line showing resistance levels and a horizontal trend line showing support levels and the downward sloping trend line gradually converges towards the horizontal trend line. When this pattern emerges, the market becomes extremely volatile or at least has the propensity to become volatile and you can capitalise on the situation. An example of the descending triangle is shown below:
How to draw the descending triangle?
Following the following simple steps to draw the descending triangle:
- Fire up a candlestick chart for any underlying asset you want to trade in.
- Identify the three lowest low prices and join the points using a straight line. This should be a horizontal line. This will show you the support levels.
- Identify the three highest high prices but each high subsequently lower than the previous high. Join the three points using a straight line. You will get a downward sloping trend line which will show the resistance levels.
Implications of a descending triangle and using CALL and PUT options
- The downward sloping trend line indicates a bearish trend.
- When the downward sloping trend line converges and crosses the horizontal support trend line and moves below the horizontal line, it indicates a breakout and complete bearish reversal of the market.
- Before the crossover takes place between the downward sloping (resistance) trend line and the horizontal (support) trend line, prices will not go outside the trend lines but will continue to fall steadily.
- When the price touches the downward sloping (resistance) trend line, it will bounce back. So, when price touches the downward sloping trend line, open PUT option as prices will bounce back and fall.
- When the price touches the horizontal (support) trend line, it will bounce back. So, when price touches the horizontal trend line, open CALL option as prices will bounce back and rise.
Descending triangle NO TOUCH trading strategy in Binary Options
When you see a descending triangle forming, you can use it to trade NO TOUCH binary options. Take a look at the image below:
- The area above the downward sloping (resistance) trend line is the area where price of the underlying asset will never reach in given bearish market conditions. So, that is the NO TOUCH zone. You can open a NO TOUCH binary options trade for any price (strike price) above the downward sloping trend line as long as the price action is restricted with the descending triangle area.
Descending triangle TOUCH trading strategy in Binary Options
Again, when you see a descending triangle forming, you can use it to trade TOUCH binary options. Take a look at the image above. As long as the price action is restricted within the area of the descending triangle (i.e. before the downward sloping trend line converges and meets the horizontal trend line), you will know that the prices will keep bouncing off the two trend lines. So, you can use any price on either of the two trend lines and open TOUCH binary options trade.
How do you select the expiry time?
Always remember – whether you are going for a CALL or a PUT option or a TOUCH or a NO TOUCH option, the expiry time for each trade type will differ.
- For CALL or PUT options, the expiry time must be at least as long as the length of time required for the formation of 4 candlesticks on the chart. 5 minutes and 15 minutes are best suited for these trade types. However, as the prices move closer to the crossover point or the point of convergence between the downward sloping (resistance) trend line and horizontal (support) trend line, you need to keep shortening the expiry time. 60 seconds trading become very handy near the convergence point. When very close to the convergence point, it is better not to go for CALL option because the situations for a bearish breakout are ripe and market may break the support any moment and move below the horizontal line. So, very close the crossover point, only PUT options make sense.
- For NO TOUCH options, expiry times can be short and may be as short as 5 minutes.
- For TOUCH options, expiry times need to be long. How long? This depends of the trading time frame you actually selected. The expiry time for TOUCH options can be anywhere between 3 and 7 days. It can be longer but it is better you keep it to a maximum of 7 days because anything more than 7 days becomes too unpredictable.
That’s all about descending triangle trading strategy in binary options. Though simple, it takes some practice and it is better that you do some demo practice. Select a broker with a demo account option and practice this strategy well before you enter the real market.