Candlestick Charts in Binary Options
The Importance of Candle Stick Charts
Candlestick charts are very important in trading because they not only serve as a means of price action representation, but they also give a visual representation of what traders are doing in the market.
A simple bar chart will just show a vertical line whose two ends are the high and low, and two short horizontal bars attached on each side of the vertical bar to show open and closing prices. Looking at this, there is no information as to what buyers did or what sellers did. The candlestick in contrast shows very clearly when buyers are dominating and when sellers are dominating. Points where the dominance of one party is stripped away by other parties in the trade is also visible, and this can be used by traders to immediately decide on what action to take in the financial markets.
This also paves the way for the use of candlesticks to trade the binary options market.
Use of Candlestick Charts in Binary Options
The beauty of candlestick charts is that they can be used to trade short term, ultra-short term, medium term or long term. Information from one or two candles is enough to deliver bankable signals to the trader.
Candlestick patterns that are of interest to use would be the reversal candlestick patterns. This is because their appearance is enough to tell us when to trade with a bearish bias (PUT option) or trade with a bullish bias (CALL option).
There are several reversal candlestick patterns. Some are highly reliable and need no further confirmation from other candlesticks or indicators, while some are only moderately reliable and would need further confirmation. We now take time to list these candlesticks one after the other so as to indicate under what conditions they should be used to trade the CALL/PUT binary options trades.
Pinbars include the following candlestick patterns:
b) Hanging man
c) Shooting star
d) Inverted hammer
The pinbars are good for short term trades. This means that the moment the candle is completed, the trade should be initiated at the open of the next candle and the expiry should When the pinbars are located at the top of a trend, they can be used to trade the PUT option. When they occur at the bottom of a trend, they can be used to trade the CALL option.
2. Doji Star
The Doji star patterns (morning doji star and evening doji star) are used to trade price reversals. The good thing about the doji star patterns is that they are very strong candlestick reversal patterns. So when you see them occurring at either side of the trend, they can be used to trade the reversals in the corresponding direction. The evening doji star can be used to trade the CALL option, and the morning doji star can be used to trade the PUT option.
3. Engulfing Patterns
There are two engulfing patterns: bullish engulfing and bearish engulfing. The appearance of the bullish engulfing pattern at the top of a trend should be used to trade the PUT option at the open of the next candle. The bearish engulfing pattern is used at the bottom of a trend to trade the CALL option.
The “pregnant candles” or haramis can also be used to trade the CALL and PUT option. The issue with the haramis is that they have to be combined with other means of confirmation as they are of moderate reliability when used for trading purposes. So if you have a bearish harami occurring at an area of solid resistance, that is strong enough confirmation to get in with a PUT trade. If the bullish harami occurs at an area of strong support, that is a good indication to trade the CALL option.
There are other candlestick patterns that we will see on the charts. These are as follows:
a) Tweezers: Tweezers are candlestick patterns made up of two candlesticks which have either the same high and close prices (Tweezer Top) or the same low and close prices (Tweezer Bottom). The Tweezer Top is a bearish formation. It’s appearance is a signal to open a PUT position at the open of the next candle. The Tweezer Bottom is used for the CALL option. The Tweezer is a rare candlestick.
b) Kicker patterns and black crows are candlesticks made up of successive candlestick patterns in a particular direction. They are made up of three candlesticks running in the same direction to force the asset upwards or downwards. The appearance of two of the candles can be used as a basis for making the entry.
All said, candlesticks can be used very efficiently for making trade entries in the binary options market.