On this lesson we will go through the most basic patterns you can find on your charts and with time and practice you will be able to spot them with the naked eye.

1. Binary Trading Finance
100 - Beginner Course
Lesson BTF110: Chart Patterns
Presented by Orlando Gutierrez for BinaryTradingFinance.com

2. Risk Disclosure
Trading binary options is a challenging and potentially profitable endeavor for
educated and disciplined investors who are willing to take an above average risk
on their capital. Before you decide to enter the world of binary options you
should carefully consider your objectives, education/capability and most of all
your risk aversion. Never invest money you cannot afford to lose.
Moreover, the information presented here is for informational and educational
purposes only; the contents of this presentation are not to be considered as an
offer or advice to buy or sell any particular security.

3. Summary
• What are chart patterns
• How do we trade trade chart patterns: break outs and
bounces
• Price Channels
• Triangles
• Bullish and bearish flags
• Double top and bottom
• Head and shoulder

4. What chart patterns?
• Chart patterns are identifiable shapes that are naturally formed from
bars on a stock, currency pair or commodity price action chart.
• These patterns play a big role in technical analysis.
• As traders we make our decisions based on price action movements.
• These price movements very often create patterns that will be learning
on this lesson.
• By recognizing these patterns on your charts you are going to be able to
accurately predict direction and take high probability trades.
• With experience you will learn how to spot patterns developing in real
time.

5. How do we trade chart patterns
• There are 2 ways to trade a pattern, when price breaks out of it and
when it´s playing the range inside of it.
• Patterns provide structure to the chart, their clean lines provide us with
previously tested levels that we can trade.
• The Break Out:
– Geometrical formations can be easily spotted once you understand them.
– Price respects the formation until it breaks out giving us a MOMENTUM trade.
• The Range:
– When a pattern is clean and big enough we don´t have to wait for the break out.
We can trade the inside of its range.
– To do this we need confirmation that the pattern levels are holding.

6. Price Channels
• Even when price moves in one direction (either up or down) it doesn´t move
on a straight line.
• Price movements tend to be sharp and then they correct for another push.
• The bounce between the push and the correction creates a trending support
and resistance.
• If price is moving up we wait until the test of the channel support to buy calls.
• If price is moving down we wait until the test of the channel´s resistance to
buy puts.
• If price breaks the structure we counter trend trade.

7. Example of trading a price channels
• Here´s the daily chart of Yahoo!. We are in a very noticeable up trend .
When price tests and rejects the channel´s support we have a long set
up.
Buy calls
ALERT!

8. Example of trading a price channels
• Now let´s imagine that after the second test on the channel support
price breaks down. The structure would now be invalid and we would
be looking to buy puts.
Buy puts
ALERT!

9. Triangles
• Triangles from when price makes lower highs and higher lows.
• This means that buyers and sellers are in control and price is compressing
into a triangle.
• Price usually trades between a descending resistance (lower highs) and
ascending support (higher lows).
• When price reaches a zone where it can´t compress anymore it breaks
out of the triangle and we trade the direction of the break out.
• We can also find triangles with flat bottoms or tops.
• If they range of the triangle is big enough we can also trade the inside of
it, when it tests and rejects its support or resistance.

10. Example of trading a Triangle Breakout
• On the daily chart of Yahoo! We can see price making lower highs and testing
a flat support, we have a triangle in play. Now we need to wait for the break
out to have momentum and direction and we get a nice long signal
Buy calls
ALERT!

11. Flags
• Flags are continuation patterns and they can be spotted on
trending markets.
• After a move up or down price needs to correct, these
retracements are usually not very deep.
• They can be drawn as very small price channels in the opposite
direction of the main trend
• After this period of correction caused by profit taking or just some
reaction to a strong level we break out of the flag and continue on
the direction of the main trend.

12. Example of trading a Bullish Flag
• On the daily chart of Morgan Stanley we can see that after a strong move up
price starts to correct inside a small channel to the opposite direction. We
wait for the break out for a continuation of the main trend.
Buy calls
ALERT!

13. Double Tops and Bottoms
• These chart patterns are reversal patterns.
• As their names implies, price tests the same zone twice before
reversing.
• Double tops occur in an uptrend and double bottoms occur in a
down trend.
• These patterns can be trade aggressively or conservatively.
• We recommend the conservative way because here you will get
confirmation of the reversal before buying your options.

14. Example of trading a Double Top
• On the daily chart of Facebook we can see that after a strong rally
price rejects the $32 level and then retest it back creating a double
top. We wait until price breaks below the neckline to buy puts
Buy puts
ALERT!

15. Head and Shoulder
• The head and shoulders pattern is a very strong reversal
confirmation.
• As it name implies, at the end of an up move price tests a
resistance zone, then breaks above just to come back down and
retest the same resistance zone again, visually creating a head
with two shoulders.
• This pattern takes some time to create and we need a break
below the neckline for confirmation to trade it.
• We can also find inverted head and shoulders at the end of down
moves.

16. Example of trading a Head and Shoulder
• On the daily Gold chart, we can see nice movements on a big range
after a strong move up creating a H&S formation. When the last leg
down breaks with the neckline we get a nice short signal.
Buy puts
ALERT!

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