How to read candlesticks for Binary Options – Patterns & formations

Finding a reasonable binary options trading strategy can seem laborious. However, one can implement a few trading strategies before buying or selling options. Binary options candlesticks are one such strategy. 

Advanced traders implement this trading strategy to come up with an adept proposition. It helps them place winning binary options trades.

Even beginners can use binary options candlesticks to place winning trades. 

Taking a first glance at candlesticks might confuse you. But don’t worry. We will tell you everything there is to know about binary options candlesticks. 

Candlestick charts for Binary Options

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What are candlesticks?

You might have noticed that brokers offer the users many charts to conduct technical analysis. Well, candlesticks are one kind of chart that most brokers, including Quotex, offer users. 

This trading chart helps you witness the direction of the price movement of an asset. It simplifies an understanding of the market movement for a trader. 

You must be familiar with the line charts that appeared on TV and in the newspapers. Well, binary options candlesticks are like a better version of the line charts. 

Good to know!
Unlike the line charts, candlestick charts let you know the price fluctuations at every point during the year. Conclusively, it covers the drawbacks of the line charts. 

Before we move on to our discussion on reading the binary options candlesticks, we would like to tell you, their relevance. 

Candlestick charts for Binary Options examples

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Relevance of Binary Options candlesticks

Trading binary options require you to analyze the market accurately. You make one mistake, and it could cost you your entire investment. The yes/no proposition makes it risky. Therefore, you need an effective trading strategy. 

Binary options candlesticks can serve this purpose. It is where the relevance of candlesticks steps in:

  • Candlestick charts make up for the information missing in the price charts. Price charts give you limited information, and you see only a fraction of the significant changes, candlestick charts cover-up up this gap.
  • When this data becomes apparent, its analysis saves you from making bad investment decisions. 
  • Line or price charts alone can dupe you into believing that different periods are the same. While trading binary options, candlesticks do away with this vagueness. It depicts the true market scenario. 
Good to know!
Staying up to date with the market changes is a must while trading binary options. Otherwise, there is always a risk of falling into the pitfall. For instance, an asset experiences an upward movement and then suddenly stalls. 
The underlying asset again begins to rise in value during the last period. However, it enters the period of fast decline again. You will not be able to notice these changes in a line or a price chart. However, a candlesticks chart will be beneficial. 

Now that you know the candlesticks’ relevance, you can learn how to use them. Let us begin with the candlestick patterns. 

Understanding candlestick patterns

The candlesticks chart helps in making the apparent market changes understandable to the users. It does away with the vagueness by presenting the information in a simplified manner. 

The chart shows a thick body of the candlesticks and two wicks at the bottom and top: 

  • Candlestick body helps you know the opening and closing price range
  • The wicks depict high and low levels occurring in each period
  • There is a color difference between the candlesticks that show your price rise and fall. 

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Good to know!
Using this information, you can understand the market trends in any given period. Trading binary options using the candlestick charts let a trader know whether investing in any underlying asset is worth it. 
The candlestick body tells a trader about an asset’s effective movement during any period. On the other hand, the wicks talk about the extreme conditions the market could not hold. 

Here are some noteworthy things about the candlestick patterns:

  • There are not just one or two candlesticks in this chart. It contains hundreds of sticks. The aggregate of these candlesticks shows you the market trend of a specific period. 
  • Ideally, you will see that a candlestick period ranges between 60 seconds and a day. However, it is not a hard and fast rule as you can change the period to adjust to your needs. 

After knowing about the candlestick patterns, you must know about the candlestick formations. 

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Candlesticks formations (pattern) for Binary Options:

These are nothing but simple formations that tell you about the future market movements. Candlesticks will let you see a clear picture while building a strategy for binary options.

Usually, there are two scenarios in their formations:

  • A long wick at the top might appear in some cases without the candlestick’s body. Such a case indicates an upward movement, and the market turns around. It means that the prices are falling during the current market period. 
  • In another scenario, you might see a long wick at the bottom. It is without a body and signals that the prices were declining but took a turn. It usually tells that the market is on the rise. 

Simple indicators

Trading strategy with indicators for Binary Options and candlestick

The candlestick chart indicators can tell a trader about the changes that have occurred and the ones that might occur. For example, if you see the long wick at the bottom but an upward body, you can tell that the market fell but rose quickly. 

This momentum passes on to the next candlesticks. So, if you come across a candlestick with a strong movement, it indicates that the market might take a round turn. Thus, one should be watchful while using the candlestick charts for binary options trading. 

Let us tell you a few candlesticks pattern that can help you while trading binary options:

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The Big Candle

The big candle pattern

This candlestick usually has a bigger body than the surrounding one. Its wick is either small or non-existent altogether. 

The big candle indicates that the market has moved in a particular direction without hesitation. The following candlesticks will usually carry this momentum. 

The big candle facing upwards indicates a strong market trend. On the other hand, a downward-facing big candle tells otherwise. 

Dragonfly Doji & gravestone Doji

Dragonfly doji

The Dragonfly Doji will show you the opening and closing market prices at the top of the trading day. It has a long bottom wick. 

The gravestone Doji, on the other hand, is the opposite of the Gravestone Doji. It shows the opening and closing market prices at the bottom and a long wick facing the top. 

This kind of candlestick looks like a hammer. It indicates the turnaround in the market during the current period. The market is pressurizing towards the opening and closing price of an asset. However, it lacks enough momentum to create a hammer. 

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Doji and long-legged Doji

Doji

This type of candlestick does not have anything close to a body. But it might have a wick to the bottom and top. The Doji candlestick indicates that the market does not have an idea of moving in any direction. 

Good to know!
These candlesticks usually appear when the trading day concludes. You can see it when the traders have halted trading. It takes place when the trading volume is lower than usual. 

Dojis signal a slow market. However, the long-legged Doji indicates a strong market movement. A trader can expect one market force to take over another in this market. Consequently, the market pushes itself powerfully in one direction. 

Other candlestick formations:

The candlestick formations for binary options trading are not limited to the few we listed. On the flip side, hundreds of candlestick variations exist. Interestingly, all these variations have different names, and you can use them to understand the market conditions. An accurate analysis of the candlestick charts can help you make the best binary options decision. 

It might get complicated to learn the names of all the candlesticks. Therefore, it is advisable to understand the rationale and system behind them. 

  • Body: The candlestick’s long body depicts a strong momentum in the direction it moves. On the other hand, the shorter one does not show any clear direction. 
  • Wick: The wick you see on any side of the market signals the turning around of the market. Witnessing the long wicks on each side will indicate the indecisiveness of the binary options candlesticks. 
No.Importance of learning candlestick formations
1Once you learn this system, you will not fail at reading the candlestick charts.
2These two indicators will help you interpret the signal of the candlestick.
3You will not have to spend time understanding the formation. Instead, you can focus on selecting the best underlying assets and building trading strategies. 

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How to use candlesticks for binary options trading?

Now that you know everything about candlesticks, it is time you understand how to use them while trading binary options

Traders can use the candlestick charts for trading binary options in three different ways:

  • Using single candlesticks
  • Combining candlesticks with other indicators
  • Sum of all candlesticks trading strategy

Let us dive right into the discussion on these binary options candlesticks strategies. 

Using single candlesticks

Are you a day trader and like to trade 1-minute or 5-minute binary options? If yes, the single candlesticks might be of immense use to you. 

Perfect for short-term predictions, the single candlesticks relate to only one or two candlesticks. 

Good to know!
Single candlesticks are beneficial only for the short term. For instance, using the big candle will allow you to predict the rise in the market with the help of the next candlestick. However, it might not let you see properly while building a long-term plan.

Single candlesticks allow you to choose from a few options while trading binary options. 

Short expiry

Binary Options 1 minute trade example

The traders who like to buy and sell high/low options can use single candlesticks. You can invest easily in the direction of the momentum that the candlestick depicts. 

You can use the big candle if you deal with binary options with short expiry.

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One-touch option

Single candlesticks like the big candle make investing in one-touch options unchallenging. Once you can predict a strong trend for the next candlestick, you can place winning trades. 

Boundary options

Doji and long-legged candlesticks allow the trades to place winning trades. It might indicate indecisiveness and confusion about where the market is going. However, this situation is not everlasting as the market will step out of Doji. Consequently, you can choose the boundary options wisely. 

Using candlesticks with other indicators

Binary options candlesticks can help a trader individually. However, if you wish to combine them with other trading indicators, feel free to do so. Combining them with other indicators will let you have a better idea about

  • The market trends
  • Price fluctuations
  • Resistance and support levels
  • The direction of price changes. 
Good to know!
Candlesticks charts are ideal for combining them with other technical indicators like the Bollinger bands. Using them with indicators such as relative strength index, moving averages, etc., will let you see a clear picture. You can keep an eye out for the candlestick hammer to know the upward or downward trends.

Sum of all candlesticks trading strategies

A trader can also choose to use the aggregate of the candlesticks for a trading decision. An individual candlestick might offer you the best short-term predictions. However, considering binary options with a longer expiry, it is better to use their aggregate.

For better results, you can follow these tips to use candlesticks:

  • If you can predict or comprehend only the last candlestick, it will be best to limit to short-term trades. 
  • Take a look at the last few candlesticks. If you can predict the same thing from these, you can consider investing in long-term options. 
  • Predicting one movement right can help you positively in the next few trades. For example, if you predicted the candlesticks accurately and won your binary options trades, you can look at the next candlestick. If it verifies your prediction, investing in the next binary options trade is safe. 

Conclusion

Binary options candlesticks can help traders reap the benefits of short-term investments. You only need to learn the system of these candlesticks and how to use them. Combining them with other trading tools and indicators can bring you sure-shot success. However, it also depends on your judgment and understanding. 

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