How to Treat a Contracting Triangle

It is time to look at how to treat a contracting triangle and the educational series we are starting here is about finding proper places to buy binary options when price is forming triangular consolidations.

Contracting triangles are the most common consolidation patterns and considering the fact that price is spending most of time in consolidation areas then understanding such patterns offers traders a clear competitive advantage in front of markets.

This project has four different video analysis that are being posted on the official Youtube channel of Binaryoptions.educationÂ  and we are going from the very basic principles of the triangular formations and ending with where to actually buy options and what would be the expiration dates, so feel free to watch them for understanding and seeing how the theory is applied on real time charting.

A contracting triangle is a corrective wave and like any corrective wave it goes in the form of threes, in the sense that each and every leg of a contracting triangle is a corrective one by itself. So the things to look for are zigzags, flats, triangles, as simple corrections or as being part of complex corrections like double or triple combinations, double or triple zigzags, or flats, etc.

Like mentioned on the recordings that are coming with this educational series, a contracting triangle has five different legs, labeled always with letters, a-b-c-d-e, and each and every leg has a corrective structure.

However, what is the most important thing to consider when looking at a contracting triangle? Well, there are a couple of things to take into consideration and they should be, not in this order, the following:

try to look all the time for the longest wave of the contracting triangle and then measure the 50% retracement level. This price level usually represents the possible end of the triangle as price will have the tendency to end around that area. Is the 50% level mandatory for the triangle to end? The answer is no. But if you are looking at a contracting triangle that is acting as a continuation pattern (meaning price is consolidating in a fourth wave type or a b wave type), then look to buy call options when price is below the 50% line if the previous trend was bullish, or to buy put options if the previous trend was bearish). The longest wave of a contracting triangle is not always the first wave, wave a, but if it is not the a wave, than look for the b wave to be the longest one, pricewise. This opens the possibility that the triangle you are looking for is an irregular variation of a contracting triangle (wave b is bigger than wave a) or a running variation of a contracting triangle (wave b is bigger than wave a and wave d is also bigger than wave c). Each and every triangle has different conditions and situations to be met and looked for before deciding where the break will be.

because a triangle has five different legs/waves, make sure you are aware of the fact that it travels between the a-c and b-d trend line. By far the most important trend line is the b-d one, and by the time this one is broken there are some factors to check and consider in order to make sure that the break you are looking at is the right one and it is not a fake break. The recordings that are coming with this educational project are showing you exactly what to look for when the e wave is expected and what are the implications when price is about to break the b-d trend line. In such a situation there is a MUST that the break of the b-d trend line should come in less than the time taken for the e wave to form. So the time element is, once again, offering us an educated guess about what to look for when price is about to end the triangle.

another important aspect to look for when treating a contracting triangle is the apex of the triangle. The apex is the intersection point at which the a-c and b-d trend lines are intersecting. The thing is that such a level represents important support and resistance area for future price action and this is very helpful when trading binary options. The higher the time frame, the stronger the support/resistance level provided by the apex.

one more thing to consider is the thrust of the contracting triangle, basically the measured move of the triangle. This one should be considered based on the length of the longest wave of the triangle, meaning one should measure the wave and then look for 70% measured move to be applied by the time the e wave of the triangle is ended. This means the minimum distance price will travel after breaking the b-d trend line will be given by the length of the longest wave of the triangle.

All these aspects are to be found out in more details on the video recordings that are coming with this educational project and therefore we invite you to watch them and if you have any questions please feel free to send us an email or just comment on you official Youtube channel.