This strategy is based on the chart models, which belong to the reversal kind. In other words, it is assumed that its formation on the chart will end with a reverse of a general trend to the opposite side.
Double top and double bottom
In order to define this chart model, a trader has to pay the special attention to the price’s behavior. The double top is formed in the situation when the trading tool’s price rises up to the level of resistance (horizontal line that represents the level which is controlled by the sellers in the market). At the same time, breakout of this level doesn’t occur.
The double top binary options’ strategy includes a purchase of the Put option at the time when the tool’s price not only rebounds from the resistance level, but also breaks out low level, which is located between the tops. The double bottom pattern’s formation occurs only when the trading tool’s price lowers to the support level two times, but doesn’t break it out. This model is the mirroring of the chart pattern that is called the Double top. For its work off, the same conditions, as for the work off of the chart pattern the Double top, has to be abided.
The Double bottom binary options’ trading strategy recommends buying the Call option in the situation when the tool’s price not only rebounds from the support level (horizontal line that shows the level controlled by buyers), but also breaks out the local high that is situated between the two points which form the bottom.
It is necessary to note that there are situations when the local maximum is located pretty high on the chart. In this case, you don’t have to wait for its breakout, and you can open the Call option after the tool’s price rebounds from the support’s level.
Triple top and triple bottom
There are situations when during the formation of the Double bottom pattern the price doesn’t break out the local high, which is situated between two tops that form the bottom. At this time, formation of another similar pattern, which is called the Triple bottom, is to be expected. In this case, the tool’s price may touch the support level once more, and it will be indicative of the upcoming trend’s reversal in the ascending direction. Formation of such pattern may take up to a few months.
The Triple bottom binary options’ trading strategy considers the Call option’s purchase after the price breaks out the local maximum (resistance level), which is located between three points that represent the bottom. It is important to remember that the long-term trend downwards has to appear on the chart before the formation of this pattern.
Quite opposite can be said about the formation of the Triple top pattern. When the price doesn’t overcome the support level (local minimum) after the formation of the double top, it touches the resistance level the third time. The final stage of the pattern’s formation starts after the rebound from this level. The price is directed to the local level of support (minimum that is located between three tops).
The Triple top binary options’ strategy considers the purchase of the Put option after the price breaks out the local minimum and goes lower. It is necessary to note that the mandatory condition of this chart’s pattern formation is the long term ascending trend, which precedes formation.
If you want to use this strategy in combination with others, here you can find the list of all binary options’ strategies