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§5.2 Trend continuation and reversal patterns

Trend is the tendency of the current price to advance or decline. At the same time a global trend which can last for a long time (several days, weeks) and a short-time trend are distinguished. If you trade in the short-run then a short-time trend will be more important for you. On the other hand, it is recommended that the trend which you follow should have the same direction as the global one. In this case the probability of success would be much higher.

If a trend is going to reverse then the price, as a rule, forms appropriate patterns. The price does the same if a trend is going to move it in the same direction. Such observations help traders to identify typical patterns, which allow predicting what kind of direction should be expected, in the nearest time.

a) Trend continuation patterns

If you can see such a pattern on a chart then you can more likely suggest how the trend is going to continue.    

– Flag. As a rule “staff” of the flag represents a narrow inclined corridor and its “cloth” is a vertical channel with the same direction as the trend. If you can see the flag then you can assume that the price will continue to go the way it came and then in the same direction as the final element of the “flag”.

флаг фигура

– Pennant (Sideways Triangle). This is the same as a flag but triangular and not rectangular shape. If the price goes out of the pattern in the trend’s direction then it signals that the trend is going to continue.

вымпел фигура

– Triangular. The triangular cannot be the signal to any action. As a rule the price enters it, hits the lower boundary, then breaks the upper boundary and goes further (during the uptrend).

трегольник фигура

– Wedge and rectangle. In fact these patterns represent the same resistance or support lines between which the price has been “locked up” for a long time. If the price goes out of the boundary of the pattern then you can assume that the trend will continue to move in the same way as the price which has broken the line.

прямоугольник фигура

b) Trend reversal patterns

Rather than the patterns described above these ones predict trend reversals. If you can see the patterns then you should place a bet for reversal as quickly as possible. Usually such patterns generally evolve for a long time. You need to make sure not to make a mistake.

– Head and shoulders. To put it simply, these are three “hillocks”. The central “hillock” is the highest. If the price forms such a pattern then there is reason to believe that the trend will reverse. However you can consider its reversal to be completed only after the price breaks the “neck” line – resistance level above which the “head and shoulders” pattern was formed.

голова и плечи фигура

If we deal with a downtrend then the pattern is called

If we deal with a downtrend then the pattern is called “inverse head and shoulders”.– Double top. It represents two “hillocks” of almost the same height. They also signal the approach of trend reversal. In the case of a downtrend the pattern is called a “double bottom”.  You can also have a triple top which is a stronger trading signal.The information provided is theoretical in nature and you will probably have more questions when you apply the theory in practice. When applying the theory you will need the ability to identify all these patterns on your chart. It is important to master this ability in order to become a trader who will be able to earn real money with Binary Options trading. It is recommended that you start trading on a demo account rather than real account.

§5.3 Bars and Japanese candles→