Japanese candlesticks in binary options trading are one of the most popular types of charts, because in addition to simply and clearly displaying prices, such charts can be used for profitable trading without the use of binary options strategies or indicators .
Such trading becomes possible thanks to candlestick patterns, which even a beginner in trading can easily use after delving into the study of candlestick analysis of binary options.
What is candlestick analysis of binary options?
Candlesticks as a method of displaying prices began to be used quite a long time ago, but not all over the world, and the name “Japanese candlesticks” did not appear for this method of display for nothing. The Japanese trader H. Munehisa was the first to use candlestick charts in trading, and the rest of the world learned about this method of display only at the end of the 20th century. Before the candlestick chart, the most popular chart was the bar chart:
In the USA, candlestick charts became known thanks to the financier of the large American bank Merrill Lynch, Steve Nison, and his book “Japanese Candlesticks” . At that time, this book was one of the most popular books in trading circles.
Candlestick analysis itself involves searching for candlestick patterns, which usually consist of 2-3 consecutive candles, but before moving on to the patterns themselves, it’s worth understanding the structure of candlesticks:
As you can see in the image above, each candle has a body (open to close) and shadows (price highs and lows). Closing up or down doesn't matter since all candles are built the same way.
Candles and candlestick patterns in candlestick analysis of binary options
All candle formations in candlestick analysis of binary options are built on individual candles, of which there are several types. Each candle may be similar to the other, but they all differ in meaning.
It is also worth noting that at the initial stage it will be difficult for beginners to see the correct candles or formations, so you can use Japanese candlestick indicators , which find and automatically mark many types of candles on the chart.
Candles in candlestick analysis of binary options
In candlestick analysis of binary options, special attention should be paid to the shadows of the candles, as they can indicate the possible mood of the market. It is worth paying attention to:
- Shadows of equal length . Such shadows indicate uncertainty in the market, and if such candles (spinning tops) appear on the chart, then it is better to refrain from transactions and see how the price will behave further.
- Long shadows on one side . If the upper shadow is larger than the lower one or vice versa (pin bars or hammers), then this indicates aggressive buying or selling (depending on which shadow is larger), and at such moments one can judge the activity in the market and the desire to go in a certain direction .
- No shadows . If the candle has a wide body and very short or completely absent shadows (Marubozu brothers), then this indicates the presence of a strong trend and at such moments it is worth considering buying options only in the direction of such candles.
There are also several other types of candles that can indicate the possible direction of the market, and these are:
- doji;
- star;
- gravestone.
It is important to understand what such candles look like, since many candle formations are based on them, which will be discussed later.
Candlestick patterns in candlestick analysis of binary options
There are a lot of candlestick patterns in the candlestick analysis of binary options:
But of course, there is no point in studying them all, since most of them can appear quite rarely on the chart, especially if a large time frame is used, but the most frequent formations are worth considering:
- Absorption (first column in the image below) . The essence of this formation is that the new candle overlaps the previous one with its range. Most often, it is enough that only the body of the candle is overlapped, but a stronger signal will be the overlap of the body and shadows of the previous candle.
- A gap in the clouds and a dark veil (second column in the image below) . This formation is visually similar to engulfing, but its essence is to update the minimum (for a downward movement) and update the maximum (for an upward movement), and then close in the other direction without completely covering the range.
- Strong top/bottom (third column in the image below) . This formation is most often observed at support and resistance levels , since the high or low is not updated, after which the price reverses
- Tweezers (fourth column in the image below) . This formation can be found quite rarely, but it is quite accurate. It is characterized by the appearance of two maximally identical candles (there can be two pin bars, two doji candles or two crosses), for which the maximum/minimum is not updated.
Conclusion
It is worth paying special attention to the fact that any candles or formations that can be found through candlestick analysis of binary options should be used only according to the trend , since against the trend they can have either a very weak effect or no effect at all.
If reversal patterns are used, then a prerequisite is confirmation of these patterns (price movement towards the signal).
And the main thing is not to forget that any method should be mastered as fully as possible, then tested on a demo account , and only then move on to real trading.
See also:
Technical analysis in binary options trading
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