Understanding Ascending Triangles and RSI

Understanding Ascending Triangles and RSI

Submitted by adil on Wed, 09/10/2014 - 21:06

Understanding Ascending Triangle & RSI

When you are trading in the binary options market, there are a number of strategies and tools that can be used to make profitable trades. Moreover, you can also trade successfully if you learn to use the market signals efficiently. For example, if you know how to trade ascending triangles, you can earn substantial profits in no time. Ascending triangles are upward trending signals, and the price should move in an upward direction when they appear on a chart. The following discussion also applies to descending triangles, because one of it is applied when the market is bullish and the other one is applied when the market is bearish.

Triangle usually moves within 5 waves, labelled as a, b, c, d, and e where the price creates a horizontal line for the trend line from b to d. This is similar to the price-building energy for an upward trending break, and is described by a sequence of higher lows, which means that the price tries to break out of the already built lows just to fail every time and move in the other direction until the trend line from b to d, is broken down.

According to the rules of the triangle, minimum 3 waves are required to retrace more than 50 percent as compared to the last wave, and the trend line from b to d must break down in a lesser duration than it takes for the formation of the e-wave.

When a trader uses the ascending triangle, he should take into account the thrust, because it represents the minimum distance covered by a price once the triangle breaks. A thrust consists of 75 percent of the wave ‘a’ (the largest wave of the ascending triangle) and is estimated to move in an upward direction once the e-wave ends. Based on the point where the triangle appears, thrust can either turn out to be a spontaneous move or a corrective move, but the distance must remain the same.

Since, the ascending triangle causes the price to trend in an upward direction after the triangle breaks, it is wise for a trader to buy call options once the trend line from b to d is broken down. The date of expiry of these call options is defined by the time duration in which the ascending triangle appears.

Now that you know how Ascending Triangles work and how you can earn profits by trading these signals efficiently, let’s look at the Relative Strength Index (RSI), which is one of the most popular indicators offered by almost every broker and on every trading platform. RSI is usually used under a momentum or under the oscillator category. The default time it usually takes is the 14 period, meaning the last 14 candles will be considered, on which the closing points will be interpreted. As a result, the data will be plotted on this.

The standard levels offered by the brokers for interpretation of result is 70 and 30. 70-level indicates the overbought position and is suitable to purchase put options, whereas 30 shows the oversold position and is suitable to purchase call options. Although, it may not be profitable every time, yet, it works in most cases, once you manage to find the consolidation pattern.

Therefore, if you wish to place a successful trade using RSI, choose a longer frame of time and find a range or a triangle, so that you can trade it on the lower frame of time afterwards with the RSI.

However, if you are a new entrant or do not have experience in binary trading, it is important for you to start with the basics and then take the expert’s advice before placing a trade using RSI or using ascending triangles signals.