Binary options are mainly used for the short/very short term trading and for that triangles are extremely useful in setting up the appropriate moment when to initiate a trade.
When looking to trade triangles on short term time frames, look for no more than the one hour chart as a time frame. The reason has to do with the fact that most of the expiration dates for binary options are on an intraday basis, and if you’re looking at a higher time frame contracting triangle then binary options are probably not the product you want to trade. Even if brokers offer binary options that have expiration dates longer that one day, going for weeks, months, and even years, the majority of the trades taking on the binary options platforms are short/very short term trades and we should address this in our educational series.
One way to trade triangles on short term time frames is to wait for the triangle to be broken and then look for the measured move of it to be projected at the moment the triangle breaks. Typically the measured move should be the length of the longest wave in the triangle. A more conservative approach would be to look for the thrust of the triangle (75% of the length of wave a) to be achieved after the triangle breaks.
Another way is to make the distinction between the type of the contracting triangle you are dealing with: continuation or reversal contracting triangle. In the first case, after the trendline is broken it is unlikely a retest of it should come, but in the case of a contracting triangle that acts as a reversal pattern, a retest of the broken trendline is more than usual, and actually it should be looked upon.
The recordings that come with this chapter will show you examples of both types of contracting triangles and what to look for when meeting one.