Making wise decisions is a key component of binary options trading. The trader must always enter a position with a solid plan because there is a high-risk factor involved. There are several tools available to make the market analysis simpler, including support and resistance levels, chart patterns, and indicators.
One such predictions strategy that analysts employ on a global scale is the candlestick. Candlesticks offer a thorough examination of market trends, but projecting the future based on historical trends can be quite difficult. Therefore, it’s crucial to comprehend how to foretell and determine the following candlestick direction. This article seeks to emphasize the same thing.
What Are Candlestick Charts?
A fundamental component of technical analysis, candlestick charts have been used to forecast price direction for many years. They are best characterized as crucial trading instruments that enable traders to comprehend market fluctuations instantly. The trading tool’s straightforward layout and visual representation of price changes are prime reasons for its popularity.
The candlestick used in the charts, represented by a single bar, displays the open, low, high, and close prices of a market for a specific amount of time while also clearly indicating whether the asset ended up higher or lower over a certain period. They take the form of patterns that, when carefully analyzed and forecasted, can significantly improve one’s trading experience.
Candlestick charts are especially popular among novices who are able to transform their trading experience through the chart’s aid as it significantly diminishes the risk factor.
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How To Read A Binary Option Candle?
Although the visual representation of candles is easy to comprehend, you must be familiar with the various components of candlesticks beforehand to fully grasp their potential.
Here are a few candlestick elements that will make it easier for you to read and comprehend a candlestick chart.
- Real Body- On a candlestick chart, the wide portion of a candle represents the real body. Over a certain period of time, the real body encompasses the space between the opening and closing prices.
- Green Real Body – When the real body is green, it indicates that the market has moved up and there is strong buying pressure. It is commonly translated to the market trend being bullish.
- Red Real Body – When the real body is red, it means there is intense selling pressure, and the market has moved downward. The market trend is typically interpreted as being bearish.
- Shadows- A candle’s shadow or wick, which can be found near the real body on a candlestick chart, is a line that shows where a stock’s price has changed in relation to its opening and closing prices.
The upper shadow stands for the highest price, while the lower shadow shows the lowest price during that time frame.
How To Predict And Calculate The Next Candlestick?
Following the market’s direction is essential if you want to conduct profitable trade. Candlestick charts help you accomplish the same, but you still need a solid prediction strategy to make full use of it.
Several factors come into play when devising a prediction strategy, such as the time period, situation of the market, etc. Depending on the displayed visuals, you can examine the market and forecast a bullish trend, negative trend, or trend continuation. The past trends determine whether your prediction is a bull move or a bear move.
Some specific patterns which indicate a bull market are:
- Bullish engulfing pattern
- Inverted hammer
- Hammer candlestick
Some specific patterns which indicate a bear market are:
- Bearish engulfing pattern
- Shooting star
- Hanging man
The Top 3 Candlestick Patterns For Binary Options Trading
The pattern is a clear indicator of the indecisiveness of both buyers and sellers. It forms when the open and close values of stock are similar due to the crowd fighting against the prices. The Doji pattern also has a few subcategories, with each having its own unique characteristics.
The hanging man comes under the category of a bearish pattern. It shows that the market favors the selling option, and prices may start falling. As it is a reversal pattern, something must cause it to reverse before the pattern appears. The market need not be in an upswing for the pattern to develop, but there must be a discernible price increase before it does.
The name hammer comes from the appearance of the candlestick, a short body with no upper wick and a long lower wick. The pattern’s appearance during a downtrend indicates the end of a bearish trend to the traders.
Is The Candlestick Chart Model Useful?
Foreseeing market moves requires an understanding of candlestick patterns. You will progress as a trader if you become familiar with the prevalent market patterns and keep a close eye. Additionally, because candlestick patterns are simple to understand, you may analyze all the crucial data in a single glance. So, it can be said that candlestick patterns are extremely useful.