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Calendar Triangle - An Option Trading Strategy

On this page today, we shall learn about the Calendar triangle option strategy. This strategy is beneficial for those who are good at reading the charts and patterns and can make quick decisions at the right time.


The triangles patterns are the signals for the beginning of the solid directional move, which can prove to be very profitable if identified at the correct time.


In a triangle chart pattern, we can clearly see that the price keeps closing in one direction, and there seems to be a war between the bearish and bullish markets.


These patterns are generally seen before a breakdown and are named continuation patterns, as they are expected to continue after the breakdown in the same direction.


Generally, it is considered that when the stock price touches the support and resistance levels five times, the triangles are formed. For example: if the stock price touches the support line thrice and the resistance line twice, or vice versa, the triangles are created.


Based on their shape, these triangles are categorized as symmetrical triangles, ascending, and descending triangles.


We shall see the details of each of them, one by one.


Symmetrical Triangle:

  • A symmetrical triangle is a chart pattern is the one that forms when the slope of an underlying asset's highs and lows converge, creating a triangular shape.

  • A symmetrical triangle pattern is a neutral chart pattern that helps in offering opportunities to both long and short traders based on the price breakout.

  • This is a scenario where buyers are pushing the price in the market, but on the other hand, the resistance by the sellers becomes the obstacle.

  • When the force from buyers and sellers is equal, they generally take a period of pause.

  • Traders are waiting for this pause period because, after this pause period, the market breaks down.

  • This pattern is generally seen when there is a big announcement or any major news is supposed to be announced.

  • Traders are waiting to make their next quick move.

  • Lastly, the duration of uncertainty ends here, the apex point explodes, and trade takes place in high volume.

Ascending Triangle:

  • An ascending triangle pattern is a bullish chart pattern which is formed by a series of higher lows and upper resistance levels.

  • The ascending triangle can be viewed easily by looking at a horizontal resistance line which runs on the peak values

  • An uptrend line from the bottom

  • With the rise in the price, the stock price finds the resistance level and starts removing the profit areas.

  • If we draw a triangle, the top line will be a straight line and the bottom line slope in an upward direction; both lines will merge at some point.

  • The higher low trend indicates that more buyers are entering the market, creating pressure towards the apex.

  • If the stock price has broken the resistance level, the new level will be a support level.

  • The breakdown of the stock price can be influenced by fundamental and technical analysis. Thus, consider the market's fundamental expectation and the underlying asset's overall sentiment while using this options strategy.

  • Make sure to watch out for Falls or fake breaks out.

  • This ascending triangle pattern is expected to continue the existing trend as it is categorized as a continuation chart pattern.

  • These continuation patterns also have wedges, flags, rectangles and pennants.

  • This strategy can experience breakouts in any of the directions. Generally speaking, upward breakouts have more chances to occur, but downward breakouts are more reliable in this strategy.

Descending Triangle

  • The descending triangle pattern is bearish. It is used in downtrend markets and has lower high and lower resistance levels. The descending Triangle is created with two trend lines, one meaning the high prices and the other being the low prices of the underlying stock.

  • The upper trend line descends, while the lower trend line is a straight horizontal line.

  • With the underlined stock price decline, it searches for the resistance level to recover some of the losses.

  • The lower highs in this strategy suggest that more and more sellers are entering the market and want to open their short position.

  • This phenomenon creates pressure to sell the underlying stock.

  • The prices of the upper trend line continue to decline while the support level or the second line below gets broken.

  • The new line is considered the resistance level when the support level is broken.

  • This type of chart can be seen in a highly volatile market or during some major announcements; thus, make sure to check the market sentiments before entering into the strategy.

Conclusion:

So, we have seen what type of chart patterns are formed when the market is highly volatile and what their impact will be on the overall position. In case you have any doubt, you can reach us at 8447445815 / 9909978783

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