Candlestick charts are very useful for tracking price movements. Traders particularly like and use them to forecast the direction in which the price of an asset will move. In detail, the patterns displayed on the charts show that whether the market for any given asset such as oil, gold, corn, shares of IBM, etc. is on average, bullish or bearish. With bullish sentiment, it signals a pending price rise; about bearish sentiment, it shows that a pending price decline. In the field of binary options trading, it can be said that candlestick chart patterns are really an invaluable tool.
Honestly, the patterns are quite easy to read, even if they first come into view so. Knowing what to look for can help you to understand these charts deeply. In this page, we will give you a short, but thorough, guide how to read the charts and know valuable information of the patterns that you have a look at. In addition, you’ll learn how to identify quickly the most popular candlestick chart patterns, as well as how to apply them to gain more beneficial binary options trades.
Candlestick Chart Patterns And Their Meaning
At present, there are up to dozens of candlestick chart patterns, and each one signifies for something in its way. It’s unnecessary to remember all of them at once. Some are less popular than others. Also, some are less useful and helpful than others. The following patterns are among the most important ones to recognize.
With Doji, this pattern appears if the asset’s closing price is the same or almost the same as its opening price. The bar presents as a horizontal line. The candle’s wick runs vertically, creating a cross, upright or inverted, or plus sign with the bar. The doji pattern pointed out the state of being uncertain and the inability to make a decision quickly on the part of the market.
Hammer plays a role as a hammer pattern that can come out in case the asset’s price has been declining. The price of an asset drops after opening which shows strong selling pressure. However, by the closing time of the trading session, we see the price rallies and buying pressure builds to the point that the price of an asset is pushed above its opening price. This activity creates a candle in a shape that it looks quite similar to a hammer with the wick expanding downward from the bottom of the bar. As a hammer pattern, it recommends that both investors and traders are beginning to be bullish.
Named Morning Star, this pattern can surface after three days. In the first day, a long red or filled bar is made as the price of an asset closes far below its opening price. In the second day, a much smaller red or filled bar is made as the price closes below the previous day’s closing price. In the third day, a long green or unfilled bar comes out as the asset’s price rises after opening, and closes above the middle of the first day’s bar. Many traders take this to mean the bearish sentiment behind the asset is inverting.
For Shooting Star, this pattern develops the day that follows a strong rise in the price of an asset. With this case, the price opens above the previous day’s closing price, and it continues to rise. But, it falls throughout intraday trading and finally closes near the opening price. This reasons the candle of the day to look like an inverted hammer.
The Engulfing pattern can surface in two ways, one showing bullish sentiment and the other showing bearish sentiment. Both these two ways involve a small bar come after by a long bar, where the range of the latter expands beyond that of the former on both ends. A bullish engulfing pattern is in development if the first day results in a price decline (red bar) and the second day results in a price rise (green bar). A bearish engulfing pattern is in development if the opposite happens such as the first day produces a price increase and the second day produces a price decrease.
The Piercing line pattern is to develop over two days. In the first day, the selling pressure pushes the closing price of an asset far below its opening price. In the second day, the price rallies as buying pressure pushes it rising, past the middle of the previous day’s opening-closing range. We can see this is a bullish indicator.
With Spinning Top, it is created if intraday trading causes the asset’s price to drop far below, and rise far above, the day’s opening-closing range. In this pattern, the candle appears the same to a top, with a short bar and a long wick that expands from both ends. Similar to a doji pattern, the spinning top also signals for market indecision.
Harami is a pattern that emerges over a two-day period. In its appearance, it is seen as the opposite of the engulfing pattern. That is, the open-close range of the second day is eclipsed by the open-close range of the previous day. Especially, the Harami pattern can be either bullish or bearish. It depends on the activity happening over a three-day period. In detail, two days of downward price movement conformed by a price increase on the third day is a bullish sign. Additionally, one or two days of upward price momentum conformed by a price decrease is a bearish indicator.
Recognizing popular candlestick chart patterns when taking part in trading binary options will support you to choose more beneficial trades. Thus, we suggest you to start with the eight above patterns. After that, with those under your belt, you can try to learn in order to identify the less popular ones. You’ll realize that they can be amazingly accurate in forecasting future price movements in the assets that you trade.
For the aim of recognizing patterns in candlestick charts, first of all, you need to know what the individual markers, or “candles,” show. Now, let’s cover this basic knowledge.
Every candlestick chart is included by a series of candles. Each candle depicts a trading session, and illustrates the opening price of the asset, closing price, and lowest or highest trading price.
Additionally, each candle has a bar and a wick (or known as a shadow). The bar describes the range between the opening and closing prices of the asset for the trading session. On most charts, we see that the bars are either green or red. Apart from that, they might show as hollow or filled. A green (or hollow) bar means that the closing price of the asset was higher than its opening price. Generally, this is seen as a bullish indicator. In contrast, a red (or filled) bar indicates that the closing price of the asset was lower than its opening price, and considered as a bearish indicator.
In addition, the wick of a candle is a vertical line extending from the top or bottom of the bar (and sometimes both). It shows the highest and/or lowest prices of the asset throughout the trading session.
Are Candlestick Charts Powerful As A Binary Options Trading Tool?
Commonly, we see that Candlestick charts are used in technical analysis. The guiding rule for how to use them is that asset prices can be forecasted with reasonable accuracy based on the past market activity. For instance, if a particular pattern emerges that means it is a signal for a bullish sentiment in the market, then a lot traders respond to it by purchasing the asset in question. In contrast, if a candlestick chart pattern displays growing bearish sentiment, a number of traders will answer by selling the asset in question.
For your notice, this kind of analysis is driven extensively by market psychology. It means if an asset’s price increase as more people buy it. In turn, this is a signal to others that they also should buy it. Thus, it drives the price of the asset even higher. The opposite happens in case an asset’s price is falling. More people sell it, so it causes the price to decrease further.
Playing a role as a tool for predictive modeling in the section of trading binary options, candlestick charts are very trustworthy. Still, as we considered earlier, it requires being able to identify certain patterns in leveraging them. See Push Button Influence