«Wedge» System For Trading Futures Contracts
Among the rich variety of graphical patterns formed by asset charts capable of providing information to futures traders about price trends, some patterns stand out, the construction format of which enables traders to determine either the continuation of a current trend or the price reversal towards a new one. Today we’re going to look at a classic example of such a universal graphic pattern «Wedge».
As a forecasting tool, «Wedge» has a diverse format of construction. Therefore, in order to identify all its types as accurately as possible, let’s consider in detail all the modes of pattern construction in practice.
So, «Wedge» has two main types: descending and ascending. In order to generate forecasts with this system, it’s necessary to take into account the trend direction when forming a pattern. Thus, an ascending wedge on a growing trend resembles a triangle, the angle of which is directed upwards:
Such a pattern occurs at a time when the market can no longer move the price of an asset up for some reason. A rising wedge on a growing trend is a reversal trend model.
On the contrary, a downward wedge on a growing trend indicates the continuation of the current trend. In this case, the angle of the pattern will be directed downwards:
On a downtrend, the graphic pattern «Wedge» has a similar format with the difference that in this case, here the downward wedge is going to be a reversal:
A signal of the continuation of the current trend will be an upward pattern:
When executing contracts with this trading system, there is a simple rule – we should always open long trading positions on the descending pattern format, while short positions should be opened on the ascending wedge.
In order to work comfortably according to the strategy, correctly determine the «Wedge» pattern, traders need a secure terminal for binary options with available graphical technical analysis tools. Such a set of conditions and services is available at the Binomo high-tech terminal.
Additional conditions of work with the system
- The chart timeframe: graphical patterns are formed on all main periods of trading charts, so you can work with this strategy on any timeframe. However, we should note that futures binary options trading has a highly dynamic mode of operation in the financial market, therefore, not to get a reduction in the dynamics of trading operations and capital growth, we don’t recommend using the system on charts with a period above M15.
- Base asset: when it comes to choosing the optimal asset, the system is completely universal and allows you to use any available tool on your platform for trading.
- Trading time: when choosing the optimal time management, it’s necessary to take into account certain difficulties in identifying the Wedge technical pattern. In this case, we are talking about the speed of updating the liquidity graphs on the minimum timeframes. The problem is that in volatile markets you may not have enough time to open positions after identifying the signal pattern. Therefore, we recommend using the system at night, when quotes demonstrate low volatility.
Buying CALL contracts
There are two conditions to open long positions in this strategy. The first is a downward wedge formed on a growing trend. You should execute the contract at the end of the price correction, which will be reflected in the breakdown of the resistance level of the pattern.
The second condition is the formation of a downward wedge on a bearish trend, which indicates a trend reversal soon. The position should be opened in the breakdown of resistance.
For PUT contracts
In this case, there are also two conditions to open positions. The first is that a downward wedge has formed on the downtrend after the breakdown of support, which indicates the end of the correction. Here we should open a short position.
The second condition is that a rising wedge (a reversal trend model) has formed on a bullish trend. You should open a short position after the breakdown of the pattern support.
In order to accurately determine the frequency of expiration of trading positions, it’s necessary to take into account several indicators: the current market volatility and the timeframe of the chart. For intraday trading, you’d better use contracts with the expiration of 5 minutes on the chart timeframe 1 minute.
Graphic patterns, including the «Wedge», have the highest rates of profitability of signals. On average, more than 80% of the trading forecasts generated by the strategy give a positive result. Thus, with this format of analysis, you’ll get a high dynamic of the growth of your investment capital.
Trading operations in this strategy have rather a high dynamic. Therefore, to create the most effective conditions for money management, we recommend executing contracts of no more than 3% of your deposit. This way you can use signals from other trading instruments and execute contracts, thereby increasing the overall financial performance of the strategy.