Table of contents:
- 1 difference between normal line-charts and Candlestick-Chart
- 2 BINARY OPTIONS CANDLESTICK CHARTS -READ AND ANALYZE CORRECTLY
- 3 Binary Options Candlestick Wick Strategy
- 4 Popular candlestick formations
- 4.1 Hammer formations – end of the downward movement as a potential consequence
- 4.2 Shooting Star and Hanging Man – an upward movement can come to an end
- 4.3 Yo Sen and In Sen – an indication of pronounced momentum
- 4.4 Conclusion: The candlestick chart has a lot of advantages for Binary Options trading
Various approaches used in technical analysis are older than many traders might think. Several centuries ago, the Japanese used a certain form of displaying price developments – the so-called candle charts, also known as candlesticks in the English-speaking world.
At that time, the candle charts were used to illustrate and analyze the price development of rice. Even today, Japanese candlesticks are still very important for many traders who trade in stocks, foreign exchange, derivatives, and other financial instruments. The following sections, therefore, explain how to read candlesticks with Binary Options correctly.
difference between normal line-charts and Candlestick-Chart
Line charts show the price development, as the name suggests, as a simple, often zigzagging line. Basically, this line is created by linking the individually determined prices of an underlying asset. This line can be used to determine a trend, for example. The individual points can contain different values. For example, there are line charts that are based on closing prices, and line charts that represent opening prices.
Charts based on candlesticks are more complex compared to line charts because they provide the analyst with more information. For each time unit, i.e. within the scope of a candle, there is not only one data point, but several direct pieces of information that can play an important role in the targeted analysis of the underlying market. Candlesticks consist of a body and usually two wicks.
What information does a single candlestick contain?
Probably the most obvious information of a candlestick is the color of the body – it is quick and easy to see whether the closing price is above or below the opening price. The opening and closing prices are referred to in the English-speaking world as opening price and closing price.
The two colors used for display depend either on the platform or on the settings. Falling prices are often displayed in the warning colors red or orange while rising prices are often marked with a friendly green or blue tone. In the example, the colors green and red are used.
With the green candle, the closing price is above the opening price. The lower end of the body thus marks the opening price, while the upper end of the body defines the closing price. With the red candle, it is exactly the opposite. Here the closing price is below the opening price, which marks the upper end of the body.
With the color of the candle, the opening and the closing price, three direct pieces of information are already available. The other two pieces of information relate to the wicks – they show the analyst which highs and lows were reached in the underlying time unit. The upper peak of the upper wick always marks the highest price, while the lower peak of the lower wick always represents the lowest price.
Example of a positive price development
The green candle in the following picture describes a market where a price increase can be observed in the underlying time period. We are thus talking about a so-called bullish candle. An important indication of the positive trend is that the closing price of 1.11785 is clearly above the opening price of 1.11740. The high was marked at 1.11815. Thus, the price within the framework of this candle was significantly above the closing price in the short term. At 1,11710, on the other hand, the lowest price can be found. This price is also at a level significantly below the opening price. Wicks are often referred to as shadows or as an upper shadow or lower shadow.
Example of a price development that is evaluated negatively
If the market falls within a defined period of time, this is called a bearish candle. In the following picture, the body of the candle is colored red, which means that the closing price of 1.11740 is below the opening price of 1.11785. The high in this case is at 1.11815 and the low at 1.11740. These two points are marked by the two ends of the wicks, as with a bearish candle.
The considered period of a candlestick in time-based charts
When looking at candlestick charts and various other chart types, one aspect should be given special attention. In the context of time-based charts, a candle always refers to a specific time period. There are platforms where the time periods can be freely defined. However, a large number of trading platforms use the predefined time periods 1M for one minute, 5M for 5 minutes, 15M for 15 minutes, 30M for 30 minutes, 1H for one hour, 4H for 4 hours, 1D for 1 day, 1W for 1 week and 1MN for 1 month.
This time specification gives information about how long it takes until a candle is ready. When analyzing the candle, it is of course useful to make sure that its development is completely finished. For example, if a candle is on the 5-minute chart, you should not jump to conclusions just 3 minutes after the opening price. Only when the 5-minute time has expired, and thus the candle is final, is all information really available.
Furthermore, the market can be perceived differently from the time window to the time window. For this reason, for example, it should never be ignored for which time period a certain signal applies. The following two charts both describe the same market – the only significant difference is that in the first case a 30-minute chart was chosen and in the second case a 5-minute chart is used. The area highlighted in white defines an envisaged time period. While in the 30-minute chart only two candles were formed within this time span, in the 5-minute chart a full 12 candles were formed. In this example, it is easy to see that the rather straightforward price development visible in the 30-minute chart is much less homogeneous in the 5-minute chart – subordinate movements can be seen.
BINARY OPTIONS CANDLESTICK CHARTS -READ AND ANALYZE CORRECTLY
The information provided by a candlestick or a series of candlesticks, i.e. the opening and closing prices as well as the highest and lowest prices, can provide valuable services in the analysis. Of course, the candlestick analysis should not necessarily be used as the sole basis for decision-making – but in combination with other analysis methods, it is a good aid in finding buy or sell signals. For example, they can be used to find out whether the market sentiment is positive or negative – they show whether a stock has been bought or rather sold in a certain period of time.
Before you start trading, you should use a trusted Binary Options Broker which provides good candlestick charting:
The relationship between buyers and sellers in the market – what do candlesticks say about this relationship?
If a market rises in a certain period of time, it can be assumed that demand was high and there were many buyers and relatively few sellers. In contrast, a falling market means that demand was low – the sellers outnumber the buyers. Of course, there are markets with more or less momentum. Momentum can be defined as the intensity of a buying or selling behavior.
In this respect, candlesticks are an excellent aid for evaluating a market situation. If, for example, the candle is very large in comparison to the previous periods, one usually speaks of high momentum. If the closing price is exactly at the opening price after the start of the time, the trader world speaks of a Doji. This situation can be considered neutral. The following picture shows such a candle.
- Huge candlesticks show momentum
- You can see where are a lot of buyers or sellers
- Small candlesticks show low volatility
The development of momentum In the bull and bear markets
Whether a market is rising or falling strongly can be best assessed if not only a single candle is considered in isolation, but also its environment. In the example shown below, a rising market, i.e. a bull market, can be identified. Although the closing price of all three candlesticks is above the opening price, there are differences. The example shows very nicely how the market accelerates from the second candle upwards – this situation can be described as a development of bullish momentum. Another indication of upward momentum is that the closing prices of the last two candles are close to the respective highs.
The chart below describes the opposite development from the above example. The bearish situation is obvious due to the three consecutive candlesticks with closing prices below the opening prices. From the second candle onwards, the market accelerates downward – this development can be described as bearish momentum. In addition, the last two closing prices, which are close to the respective lows, point to a strong sell-off.
The importance of wicks and gaps
Wicks, also known as shadows or wicks, is basically the difference between the opening or closing price and the highest or lowest prices. When assessing the market situation, not only the size and color of the body but also the length of the wicks can give an indication of the market situation.
The following picture shows a green candle with a particularly long wick and a closing price close to the highest price. This candle can be seen as particularly bullish, as the long wick shows that although there was a lot of selling pressure, it could not be sustained.
Such candles are often found in the area of so-called support zones. It is not uncommon to find several candles of this type in this zone. The following picture shows how a support zone defined by long wicks can look like. Here you can see how the market has repeatedly tried to form lows. However, the closing price moved up again and again from candle to candle. From the 5th candle onwards, one can speak of a bullish tendency, as the candles not only show long wicks but also close in the green zone.
When looking at candles, it is noticeable that there is sometimes a gap between the closing price of one candle and the opening price of the following candle. We are talking here about a so-called gap. A gap can have various causes. Often the market had simply closed at that time. However, there are also extraordinary things that can lead to a gap in the price. These include, for example, a sudden increase in volatility and insufficient liquidity, trading systems that fail, or trading being suspended.
Binary Options Candlestick Wick Strategy
A very powerful strategy is to trade these long wickeds as support or resistance. It is very easy to do it. Just find a long shadow and mark it on the chart. Wait for a retest and a confirmation signal. Then you make the entry.
The following picture is showing the candlestick wick strategy:
You will often see that the price retests this area immediately after the creation of a long wick candle. These are also good entries for making money.
Why we should wait for the closing price
As long as a candle has not been closed, i.e. the closing price has no finality, a lot can still change with regard to market development. The market can both maintain its current trend and turn completely around. This of course also means that not only the closing price but also the highs and lows can be redefined.
Personally, I always wait for a candle close to open a trade. It is more safety for me. But some traders like to open a trade immediately after the test of an important price area. I recommend testing both versions of trading.
Popular candlestick formations
There are several simple candlestick patterns that can be a good source of trading signals or as confirmation of existing analysis. Since the formations presented here consist of only a single candlestick, they are relatively easy to locate on the chart. There are even chart programs that can automatically search and display candlestick formations – such tools are of course a convenient help. Nevertheless, it does, of course, make sense to know the common formations and understand why they can be considered a buy or sell signal. In the following sections, various hammer formations, Shooting Star, Hanging Man, Yo Sen, and In Sen are explained in more detail.
Hammer formations – end of the downward movement as a potential consequence
The hammer formation is one of the best known candlestick patterns. It is a formation that could mean a trend reversal after a previously falling market. Characteristic for a hammer candle is a very small body compared to the lower wick. A rule says that the lower wicks must be at least twice as long as the body. The upper wick should only be very weakly pronounced or preferably not exist at all. The following picture shows a perfect example of a hammer situation.
An Inverted Hammer looks similar to a normal hammer formation. But in this candle, the long wick is not at the bottom but at the top – the position of the body is at the lower end of the candle range. The Inverted Hammer is a trend reversal formation, which can appear at the end of a downward movement. This formation gains strength when the price of the following candle closes above the body of the Inverted Hammer candle. The following picture describes such a situation.
Shooting Star and Hanging Man – an upward movement can come to an end
In the formations Shooting Star and Hanging Man, parallels can be seen to the patterns Hammer and Inverted Hammer already shown here. However, both formations refer to a market that has already risen in the run-up to the candle under consideration. Synchronously, the Shooting Star has a long upper wick – the body is relatively short like a hammer candle. The longer the upper wick and the shorter the body, the more meaningful the situation. The lower gusset should be as marginal as possible. This is a signal that can initiate a bearish tendency.
The Hanging Man, which can be found at the end of a market rise, has a short body and a long lower wick. In this case, the candle gains in significance when the price of the following candle closes below the body of the hanging man. This situation can also initiate a trend reversal – as the example illustrates very well.
Yo Sen and In Sen – an indication of pronounced momentum
Yo Sen and In Sen Candles are also known as Momentum Candles. This term already gives an idea of what kind of formation this could be. They are candles that signal strong buying or selling behavior. While the Yo Sen Formation describes a clear bullish tendency, the In Sen Candle represents a strong bearish tendency. Both formations often appear in the area of breakout zones. Characteristic for these candles are large bodies and only marginal or no pronounced wicks.
Conclusion: The candlestick chart has a lot of advantages for Binary Options trading
If you are a Binary Options trader, you should use the candlestick chart. It has more advantages than the normal line chart because you can read more information about the market. It is easier to do an interpretation of what buyers and sellers are doing. I hope this site was helpful and can give you more profits in trading.
Read my other articles about Binary Options:
- 15 Rules for Binay Options – Tips & Tricks
- 5 best Binary Options Broker 2020 – Review & Comparison
- Are Binary Options a gamble?
- Are Binary Options a scam?
- Are Binary Options Robots a Scam? – Honest review
- Best Binary Options App – Comparison & Review
- Binary Option Markets
- Binary Options – Call and Put
- Binary Options – Range Options – Boundary Options
- Binary Options – Touch Options
- Binary Options 60 seconds Trading Strategy & Tips
- Binary Options Bollinger Bands Strategy
- Binary Options commodities trading
- Binary Options demo account – Recommended For Beginners
- Binary Options Money Management Strategy
- Binary Options News Trading
- Binary Options regulation – Why is it important?
- Binary Options review – Critic and warning
- Binary Options RSI Strategy
- Binary Options trend following strategy
- Binary Options volatility strategy
- Binary Options vs. CFD Trading – Which one is better?
- Binary Options vs. classic options
- Binary Options vs. Forex Trading – Which one is better?
- Chart analysis for Binary Options
- Forex Trading with Binary Options
- Hedging Binary Options: Can You Hedge Against Losses?
- How risky are binary options?
- How to avoid Binary Options Scam Brokers
- How to trade Binary Options – Trading Tutorial
- How to Trade Stocks with Binary Options – Tutorial
- Is Binary Options Trading safe? – Consumer protection
- Learn to read Binary Options Candle Sticks
- Trade Binary Options with MetaTrader
- Trade Pivot Points with Binary Options
- Warning about Binary Options – A form of betting
- What are Binary Options?
- Why Binary Options Signals are a scam