Ascending triangles are bullish patterns meaning the price should break to the upside when such formations are identified on a chart. Everything that we are going to talk about here is valid for descending triangles as well only that former are referring to bullish conditions and the latter one to bearish conditions.
Any triangle is traveling within five different waves and they should be labeled with letters a-b-c-d-e and the most important thing to consider here is the fact that price is making almost a horizontal line for the upper trend line (the b-d trend line).
This resembles with price building energy to break higher and it is characterized by a series of higher lows, meaning price should try to break the previous lows only to fail each and every time and to turn the other way around until the b-d trend line is broken.
Rules of the Triangle
Then we should look at the rules of the triangle that are stating that at least three waves need to retrace more than 50% when compared with the previous wave and the fact that the b-d trend line should be broken in less than the time taken for the e wave to form. Both situations are explained in the videos, so please feel free to watch them here on the official Youtube channel of Fair Binary Options.
Whenever trading a triangle we should consider the measured move (the thrust) as this is the minimum distance price should travel after the triangle is broken.
Such a thrust represents 75% taken from the longest wave of the triangle (wave a) and projected to the upside after the e wave ended. Depending on the place the triangle is forming, the thrust can be an impulsive move or a corrective move as well but the distance should be the same.
Because an ascending triangle implies price to move to the upside after the triangle is broken, we should consider getting BUY CFDs or CALL options after the b-d trend line is broken with the expiration date being given by the time frame the triangle appears.
More details to be found on the two videos in the article.
Trading a triangle is an experience on its own in the sense that there are so many things to look for that it is truly difficult to know when the triangle is breaking and when to look for its measured move, or the thrust.
An ascending triangle is breaking higher, but the expiration date should be calibrated according to the time frame the triangle appears on and according to the wave within the triangle. An example: If you find a triangle that is supposed to break higher, say a triangle that is acting as a 4th wave in a rising impulsive move or a b wave in a zigzag, and that triangle is on the daily chart, then it is pointless to look for short-term expiration dates if you are trading binary options, because you are looking at daily time span, so your short term option success will not have any relation to the formation of the pattern, which takes much longer.
Short Positions Following Third Leg of the Triangle
What one should look for is for Fibonacci ratios between the legs of the triangle as everyone knows/should know that a triangle has five legs, a-b-c-d-e. If there are only two or three legs that are completed, then yes, we can trade SELL contracts or PUT options in an ascending triangle but the expiration date with options should always be shorter than the one we have for the call option.
Money Management when Trading Ascending Triangle
This brings us to the money management rule when trading a full portfolio and having in front of you an ascending triangle: hedging is possible as one can trade both directions.
SELL CFDs/PUT options after B wave on Longer Horizons
If the triangle is forming on a bigger time frame, like the daily or even the four hours chart, then going short after wave b is indicated makes sense. If you are using binary options, then trade with end of day or even end of week expiration date. However, in the same time there is the possibility to trade BUY contracts or CALL options (with end of month or one month expiration date) as, let’s not forget, the triangle is supposed to break higher in the end.
Fibonacci relations should be considered as well as there is no triangle without a Fibo relation and one clue is that the b wave in any kind of a triangular formation is not possible to end at the 61.8% area of wave a. If that is happening, then the structure you are looking at is definitely not a triangle so your open positions might go sour.
Mind the Trendlines
And then there are the trend lines: the a-c and b-d trend lines. If one is not supposed to be broken until the end, it is possible that the a-c trend line to be broken many times depending of the type of the ascending triangle you are dealing with.
In terms of Elliott Waves Theory, such a triangle can appear as a 4th wave or a B wave, but most likely it is being part of a complex correction, either a running one or a classical double or a triple combination.