Wedges are used not only in building, but also in trading. Wedges have a lot of applications in trading in general but are especially useful in binary options trading. A wedge pattern indicates a reversal of the currently formed trend and suggests to the trader that they should trade the reversal of the market trend and not the market’s overall trend. A wedge can be found either at the end or at the middle of the moves. Prices get pushed quickly in one direction when they contract inside the wedge and in this case, traders can make more profit.
When dealing in binary options trading, time and price are the two elements with greatest importance. Therefore, traders must include both the price target and the time element in the same analysis if they are binary options trading. Wedges meet these requirements. A wedge is a 5-wave structure which is labelled with numbers (1-2-3-4-5).
Those who have worked in one of the financial markets noticed that the price chart does not move in a straight line but oscillates. Sometimes the line looks like waves with ups and downs. Let’s discuss the “Wedge” strategy of trading.
How the Wedge is formed
A wedge is a triangular shaped tool, and is a portable inclined plane, and one of the six simple machines.
The support and resistance lines shape the wedge to point at the trend movement. There is no breakdown or reversal because the number of buyers and sellers are approximately equal.
Later, as sellers and buyers show resistance to each other, the fluctuations on the chart become less and less. This is how the wedge pattern is formed.
Why should you use patterns?
It is a good question! After all, at first glance, some figure formed on the chart should not influence the market. But it is not she who has the influence on him.
The price is “pushed” by the bidders, buying, or selling an asset. More buyers – the price grows, more sellers – the price goes down.
Most traders use wedges on their charts. They open a deal on its signal, thereby “moving” the market in the appropriate direction. It means the crowd psychology in action.
How to trade binary options using wedges?
When the wedge is formed, wait for one of the lines of the narrowed channel to break through. If the candlestick closed behind it, then you can safely open a deal in the direction of the breakout.
Important! When setting the expiration date, remember that the price can return to the line to retest it and only then follow a trend. Therefore, the duration of your contract should not be less than the period of formation of five candles.
Use timeframes of 1 minute and 5 minutes so you don’t have to wait long for the pattern to finish.
With the same characteristics as a rising wedge pattern, the difference with a falling wedge pattern is that the price has broken down above the upper trend line and acts as resistance. A falling wedge’s probably target price is the pattern’s highest price. If a trader has a strong knowledge of both falling and rising wedge patterns, they can prepare for any impending price movement and take advantage of them to make a profit.