As explained in our previous article, Introduction to Candlestick Charts for Trading, the analysis of candlestick patterns represents one of the biggest parts of what traders call Technical Analysis. Technical analysis aggregates the data into charts and indicators and helps you identify trading opportunities on a large range of financial instruments. Not only it can help you predict the time when volatility is likely to pick up, but it can also help you determine the direction the market will take.
Technical analysis is more an art than a science and all the technical indicators in the world cannot predict an earthquake or a bankruptcy. Nevertheless, the identification of simple candlestick patterns can help you avoid stupid losses and even improve your profits. The best traders are the one that follow a trading plan and stick to it. What better trigger for your trading plan than a clear candlestick pattern that is likely to be followed and emphasized by many traders like you?
Common Candlestick Chart Patterns
As you become more familiar with binary options trading you will see and identify more and more of these patterns. There exist as many patterns and indicators as there exist different traders. Nevertheless, some patterns are known by every experienced trader and are the ones that are used for the creation of more advanced indicators. We will simply present you the most popular ones and will cover each of them as well as many others in future dedicated articles.
A Doji is a single candle in which there is little change between the opening and closing prices, thus creating a cross-like appearance. It is a pattern that signals the hesitation of market participants and can be an indicator of incoming volatility. At the end of a trend, a Doji is likely to be followed by a reversal.
A Hammer is also a single candle pattern that shows a significant reversal over a specific period. It is characterised by a thick body candle with a long shadow on only one side of the candle. Depending on the side of the hammer, it shows that confidence has switch sides and that the colour of the hammer is likely to prevail for the following time period: up if the body is green and down if the body is red. A reversed hammer is often called a hanging man.
This occurs when a candle or a string of successive candles are covered by a following long body candle. The new candle therefore completely engulfs the previous candles. It tends to signal a bullish market when found at the top of an upward trend or a bearish market when found at the bottom of a downward trend.
Morning Star Pattern
Morning Star occurs when a candle with a short body is found between two long bodied candles at the bottom of a downward trend – it is the indicator that the market is turning bullish. It is a really strong indicator that is almost always followed by a bullish run of the related asset.
There are many more trading signals that can be found in a candlestick chart, however by learning a few at once, you can train yourself to look for these changes when purchasing binary options and invest wisely.
Which binary brokers propose candlestick charts?
Almost all binary option brokers propose candlestick bars but OptionRally and IG binary were really early in proposing them to clients so they were able to work out all the bugs since then. You can also use a free provider of candlestick charts such www.freestockcharts.com in parallel with a binary option broker but make sure it provides live data cause this is rarely the case. This is one of the many reasons why brokers are not able to provide free binary trading demo accounts; fraudulent clients could use them to gain access to live prices for free.
Do not hesitate to have a look at our detailed reviews of the best binary option brokers in Europe and use our links to access their websites and benefit from the full support of our team as well as additional privileges.