How To Read Candlestick Charts Binary Options

By | 17/07/2022

Candlestick charts are perhaps the nearly popular trading nautical chart. With a wealth of data hidden inside each candle, the patterns course the footing for many a trade or trading strategy.

Here we explain the candlestick and each element of the candle itself. Then we explain mutual candlestick patterns like the doji, hammer and gravestone. Beyond that, nosotros explore some of the strategy, and chart analysis with brusque tutorials. Reading candlestick charts provides a solid foundation for technical assay and winning binary options strategy.

Japanese Candlestick Charts Explained

Japanese Candlesticks are ane of the most widely used chart types. The charts testify a lot of data, and do so in a highly visual way, making information technology easy for traders to meet potential trading signals or trends and perform analysis with greater speed.  So let usa explicate what Japanese Candlesticks are, how the “candles” are created and basic candlestick estimation.

It’southward a fact that many novice traders, new to the trading industry, focus on candlesticks considering they are easy to empathize and give a feeling of existent trading to someone. Just it’s besides a fact that nobody made money
using candlestick patterns. Many new traders are excited considering they take some good results in the beginning by candlestick patterns without spending much time reading about trading, but in the long run they neglect and they come back to learn more.


Candlestick patterns are a expert tool, merely but for confirmation. Of course every trader should know how to read the candles. I believe this is “Lesson #1” for the new traders. If you know how to read the candles properly, you can use them for confirmation in your trades – simply beginning y’all must know the nuts

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Candlestick Patterns

Japanese Candlesticks are a blazon of chart which shows the loftier, low, open and close of an assets price, likewise every bit quickly showing whether the asset finished higher or lower over a specific menstruation, by creating an easy to read, simple, estimation of the market place. Candlesticks can be used for all time frames – from a 1 infinitesimal chart correct up to weekly and yearly charts, and have a long and rich history dating back to the feudal rice markets of ancient Samurai dominated Nihon. When information is presented in such a way, it makes information technology relatively easy – compared to other forms of charts – to perform analysis and spot trade signals.

To empathize how this works, nosotros’ll demand to look at how each bar is synthetic. As indicated, each candle provides data on the open, close, loftier and low of an assets price. Each reflects the fourth dimension period you take selected for your chart. For example, if a 5 minute chart was used each candle shows the open, close, high and low price information for a v infinitesimal menstruation. When v minutes has elapsed a new v minute candle starts.

The same process occurs whether you use a 1 minute nautical chart or a weekly chart.The open and shut are marked by the “fat” role of the candlestick. This is chosen the real body, and represents the difference between the open and close. If the shut is higher than the open up, the candle volition be greenish or white; if the close is lower than open the bar will exist red or black but other colors tin ofttimes be found on different charts.


The open or close are not necessarily the high or low price points of the period though. The high and low prices for the menses are marked by a “wick” or “upper shadow” and “lower shadow.” The loftier point of the upper shadow gives the highest price the asset went during that catamenia, and the low point of the lower shadow gives the lowest price the asset went during that menses.


If there are no upper or lower shadow it means the open up and shut were also the high and low for that period which in itself is a kind of signal of market place strength and direction. Occasionally you will also encounter bars that are nearly all upper and/or lower shadow, with very little real body. These are called dojis and have special meaning, a market in rest, and oft give strong signals.

Strategy Basics

Due to the highly visual construction of candlesticks there are many signals and patterns which traders use for analysis and to plant trades. Some patterns will be classed as ‘advanced strategies’, but there are general principles that those new to Japanese Candlestick charts should understand. Here are a few, I’ll go into more detail on some of these ideas farther along in this give-and-take.

  • A long existent body indicates stronger pressure than a small real torso. For example, a long greenish body represents stronger ownership force per unit area than a small green body. A long cherry-red body represents stronger selling force per unit area than a small cherry body.
  • Shadows tin can be used to determine what group of traders–buyers or sellers–was strongest at the close of a candle. While not ever, information technology is quite possible that the strongest group at the close of the prior bar will exist strongest heading into the next bar.
  • A long lower shadow with very niggling upper shadow indicates sellers tried to push button the price down, but ultimately the buyers succeeded in pushing the cost back upwards and were stiff at the close.
  • A long upper shadow with very piffling lower shadow indicates buyers tried to push the price up, only ultimately the sellers succeeded in pushing the price dorsum down and were strong at the close.
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Interpreting Tails

What many traders fail to pay attending to is the tails or wicks of a candle. They mark the highs and lows in toll which occurred over the price menstruation, and evidence where the price closed in relation to the loftier and low. During an average day of trading upper and lower shadows are ordinarily formed, and they don’t actually mean that much. But on some days, as when the price is trading nigh support or resistance levels, or along a trend line, or during a news event, a stiff shadow may form and create a trading signal of real importance.

If there is i matter that everyone should call back about the candle wicks, shadows and tails is that they are fantastic indications of back up, resistance and potential turning points in the market. To illustrate this point lets await at two very specific candle signals that comprise long upper or lower shadows.

The Hammer

The hammer is a candle that has a long lower tail and a small-scale body near the top of the candle. It shows that during that menses (whether 1 minute, five minute or daily candlesticks) that price opened and fell quite a distance, only rallied back to close near (above or beneath) the open. This is sign that buyers stepped into a weak market and are “hammering out a bottom.”

Long lower tails are seen all over the place, and aren’t meaning on their ain. Simply they are meaning when a long lower tail–hammer–is seen about support. It indicates the sellers tried to button the toll through support merely failed, and now the buyers are likely to accept cost higher once more. The thing to remember here is that a hammer could indicate a new area of support as well.

Figure i shows an example of a hammer candle on the USDJPY Daily Chart.

candlestick hammer example

Three candles, all with long tails occurred in the aforementioned price area and had very similar price lows. That 3 long tailed candles all respected the same expanse showed in that location was strong support at 100.800. When the hammer occurred (tertiary candle in the serial with the red expanse beneath it) it showed that price was probable to continue college, since sellers had tried to push the price lower, but couldn’t.

The Gravestone

The gravestone (or ‘tombstone’) is a candle that has a long upper tail and a small body nearly the bottom of the candle, opposite of the hammer. It shows that during the menstruum (whether 1 minute, 5 minute or daily candlesticks) that price opened so rallied quite a altitude, only then fell to close near (above or below) the open. This is sign that sellers stepped into a hot market and created a graveyard for the buyers.

Long upper tails are seen all over the place, and are non significant on their own. Only they are pregnant when a long upper tail–gravestone–is seen near resistance, unless of form a new resistance level is being fix. It indicates the buyers tried to push the price through resistance simply failed, and now the sellers are likely to take cost lower again.

Figure two shows an example of a gravestone candle on the EURUSD hourly nautical chart.

Candlestick gravestone example

The price tested this resistance area multiple times, finally it broke higher up it, but within the aforementioned bar (ane hour) the price collapsed back. This indicated the buyers didn’t have command and that the breakout would likely neglect. The toll did go on lower from there.

Tails, Wicks And Shadows

Await for them on candles, they are of import. Multiple long tails in i area, like in figure i, evidence at that place is a support or resistance there. If a hammer or gravestone candle occurs nigh back up or resistance, expect a reversal since the support/resistance has held. A hammer opens and closes almost the top of the candle, and has a long lower tail. A gravestone opens and closes nigh the bottom of the candle, and has a long upper tail. By themselves they can give shady signals so beware, when used with other analysis like support/resistance, stochastic, MACD, trend line etc are a very powerful tool of the modern trader. The next thing to expect out for is the doji, a candle that combines traits of the hammer and gravestone into i powerful signal.

Doji Strategy for Binary Options

Dojis are amidst the about powerful candlestick signals, if you are not using them yous should be. Candlesticks are past far the best method of charting for binary options and of the many signals derived from candlestick charting dojis are among the most popular and easy to spot.

There are several types of dojis to be enlightened of merely they all share a few common traits. Starting time, they are candles with petty to no visible body, that is, the open up and closing toll of that sessions trading are equal or very, very close together. Dojis also tend to take pronounced shadows, either upper or lower or both. These traits combine to requite deep insight into the market and tin can bear witness times of balance also as extremes. In terms of signals they are pretty accurate at pinpointing marketplace reversals, provided y’all read them correctly.

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Like all signals, doji candles can appear at any fourth dimension for but near any reason. All they really signify is a residue of today’southward traders; if buyers and sellers are in residuum during a session price action will remain stable. It takes other factors to give the doji true importance such as volume, size and position relative to technical price levels. Truly important dojis are rarer than nigh candle signals but besides more reliable to trade on. Here are some things to consider.

First, how large is the doji. If it is relatively small, every bit in it has brusk upper and lower shadows, it may be nothing more a spinning top style candle and representative of a globe-trotting marketplace and one without direction. If however the doji shadows embrace a range larger than normal the strength of the point increases, and increases relative to the size of the doji. Candles with extremely large shadows are called long legged dojis and are the strongest of all doji signals.

doji signals

Second is where the doji appears; does it announced at a back up or resistance line or is it floating in a no man’s land between two support/resistance targets. If information technology is not near a support/resistance line the signal is much weaker than if it is confirming a support or resistance. In fact, if the shadow, either upper or lower, crosses one of these lines and then closes above/below it the signal is quite strong indeed.

One of this blazon appearing at support may be a meteor, pin bar or hanging man signal; one occurring at back up may be a tombstone or a hammer signal. Wait at the instance beneath. There are numerous candles that fit the bones definition of a doji but only one stands out as a valid signal. This doji is long legged, appears at support and closes above that back up level.

doji example binary options

Another confirming indication that a doji is a strong signal and not a fake one is volume. The college the volume the better as it is an indication of marketplace delivery. In respect to the above example it means that price has corrected to an extreme, and at that farthermost buyers stepped in. It also means that near term sellers accept disappeared, or all those who wanted to sell are now out of the market, leaving the road articulate for bullish price action.

Doji’s tin can be trend following or indicate reversals and so that must be considered likewise. A doji confirming support during a clear uptrend is a trend following bespeak while i occurring at a peak during the same tendency may bespeak a correction. The same is truthful for downwardly trends. Declining to account for trend, or range jump conditions, can be the deviation between a profitable entry or not.

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Doji Patterns – Conclusions

While doji’s tin exist fantastic signals for binary options they should be considered a indicate to look for entry, and not as an entry itself. In the example above a call option is conspicuously the correct matter to practice simply if purchased at the close of the doji, it could easily have resulted in a loss. The doji shows support like sonar shows the bottom of the ocean but that does not mean a reversal will happen immediately. The best thing to do is to await for at least the adjacent candle and target an entry close to support. This same is true for resistance also.

Doji’s are also fine to use in any time frame but call up the rules. When changing fourth dimension frames add this; the doji’s size and analysis is relative to other doji’s and candles in that time frame. A long legged doji doesn’t hateful the same thing if they appear ofttimes on the charts unless it is significantly larger the average long legged doji.

Death will be your terminal business. If entry is taken very close to the targeted support/resistance level a ane or ii bar expiry is most likely all you will need but it may be prudent to extend that out to 5 bars just to make sure.

Chart Patterns Explained

Have you lot always heard the saying, “tin can’t see the wood for the trees”? This is a very apt saying that only means getting caught upwardly in the small things and non seeing the bigger flick. This can happen all to often when trading and is peculiarly common amongst newer traders. This can happen in a number of ways such as too many indicators, paying too much attending to minor day to day fluctuations or in the case of today’due south discussion, paying to much attending to your Japanese Candlesticks. Candlesticks, and candlestick charting, are one of the top methods of analyzing financial charts but like all indicators can provide just equally many bad or false signals as information technology does skilful ones. For that reason alone information technology is a good idea to filter any candle indicate with some other indicator or assay.

I’m going to assume that you already know something virtually candles because yous are this deep into the commodity already. I similar them because they offer so much more insight into price action. Switching from a line chart to an O-H-50-C chart to a candlestick chart is similar bringing the market into focus. The candles leap off the nautical chart and scream things similar Doji, Harami and other basic price patterns that can modify the course of the market. The matter is, these patterns can happen everyday. Which ones are the ones y’all want to employ for your signals? That is the question on the listen of any one who has tried and failed to merchandise with this technique.

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Candlestick Analysis – Examples

Look at the chart below; a new candle forms every day. Some day a bullish candle, some days a bearish ane, some times two or more days combine to form a larger pattern. Non all of them result in the “expected” motility. Expect at the chart below. I have marked 8 candle patterns widely used by traders that failed to perform equally expected.


Why is this you may ask yourself? It all comes down to where the signals occur relative to past price action. When I start to add other indicators to the charts information technology may become clearer. The first and foremost reason is that the candle patterns I have marked practise not take any other technical or cardinal factors into account. I know that as binary traders we do not use much fundamental analysis but any trader worth his salt has at least a minor grip on the underlying market place weather. After that some elementary additions to the chart tin can help to give some perspective and allow you lot to meet the forest, and not just the trees.

Time frame is one important factor when analyzing candlesticks. The very commencement affair I like to practice is to literally accept a step back from my standard chart for a ameliorate view of the market. I use charts of daily prices with 6 months or 1 year of data. To become the broadest view I tin I use a chart with 5 or 10 years of information. The 5 twelvemonth nautical chart is where I depict back up, resistance and trend lines that will have the most importance in my later on analysis. Having an thought of where price activeness, and the candlesticks, are in relation to the long term trend and areas of support/resistance is crucial to interpretation. A candle indicate occurring at or almost a long term line is of far more value than one that is nigh a shorter term line. You tin utilize weekly bars or daily, it doesn’t affair, simply sometimes a really strong candle bespeak volition appear on the weekly charts likewise.

Moving Averages

Moving averages are another practiced mode to help weed out bad candlestick signals. At that place are many types of moving averages only I like to use the exponential moving average because it tracks prices more closely than the unproblematic moving average. I use the xxx bar and 150 bar moving averages but you lot tin can use whatever duration that works for you. The point is to use the EMA’due south to assist confirm or deny potential candle signals. In theory, each moving average represents a grouping of traders; the 30 day EMA curt term traders and the 150 day EMA longer term traders. A candlestick signal that fires along the moving averages is a sign that that grouping of traders is behind the motion. A signal along the 30 bar EMA would not exist as strong as a signal along the 150 bar EMA while a signal that fired while the two EMA’southward were tracking alongside each other would be the strongest of all.


Book is a third gene that I similar to take into consideration when analyzing candle charts. Volume is one of the most important drivers of an avails price. The more people that want to buy an asset the higher and quicker prices will move up. The more people that want to sell an asset the lower and quicker prices will drop. This can likewise be applied to candlesticks, the more volume during a given candle signal the more important of a point it will be. Further, if volume rises on the second or third day of a signal that is boosted sign that the signal is a practiced 1.

Take a look at the chart beneath. I have redrawn support, resistance, trend lines and moving averages. So I looked for candle signals along those lines and correlated volume spike to them. Using the additional assay techniques the 8 losses on the chart above could have been avoided and instead been turned into these dozen or so winning trades. The volume does non spike on every signal merely there are a few significant spikes to encounter.


Reading Charts – Closing Guide

There are many candlestick patterns for you lot to explore if you relish this type of “visual” trading style, I’ve barely scratched the surface. Candlestick patterns are useful for both short and long-term trades as these patterns occur on i infinitesimal charts right upwardly to weekly charts (or longer). Looking at a chart you’ll meet lots of patterns, the key is to understand which ones are really signals and which ones are simply random market place movements. Be selective, and only merchandise when there are confirming factors and indicators. Apply other technical analysis methods to validate all patterns. For example, a bullish engulfing design that occurs at a support level is more probable to work out than if a bullish engulfing design occurs on its own