Tool for technical analysis
Candlestick chart is the best tool that binary options traders can use when performing technical analysis strategy.
This is a chart tool which shows the range of asset’s price movements over a given time frame.
By analyzing the past price movements on certain asset traders can predict the future movements. Trading binary options is based on predicting the asset price trends so this tool can be a great acquisition to your trading.
About Candlestick chart
The Candlestick chart shows the open and close price as well as the highest and lowest price of the asset for a given period of time. When analyzing a trading day (morning to afternoon) the most significant times are the opening and the close. The open price is at what level the asset starts the day and the close is at what level the asset ends the day.
When the closing price is higher than the opening price the candlestick is bullish, which means the asset has been traded up. If the closing price is lower than the opening price the candlestick is bearish, which means the asset has been traded down. Usually the bullish is colored green and the bearish is red.
The colored area between the opening and the closing of a trading session is called body. The thin line above the body is called upper shadow and the thin line below the body is called lower shadow. The top of the upper shadow represents the highest price level in the trading session and the bottom of the lower shadow represents the lowest price level.
Bullish / Bearish Candlestick
By looking at the chart traders can easy see when there is a buying pressure (green body) and when there is a selling pressure (red body). It can be also interpreted in other way, if the body is green the bulls were in charge for the trading day and if the body is red the bears dominated the day. The size of the body also has a value. A big green body tells the traders that the bulls were significantly in charge and a small body speaks that the bulls were only slightly more powerful than the bears.
Bullish Marubozu
This is the most powerful form of bullish candlestick here the green body has no upper or lower shadow. In this case the bulls dominated from the opening to the close of the trading day. The trading day ends with the bulls still buying and pushing prices upward until the close of the session.
Bearish Marubozu
This is the most powerful form of bearish candlestick here the red body has no upper or lower shadow. This means when the asset price open and immediately starts selling until the close of the trading session.
Support line
The support level is illustrated by a horizontal line which connects big bullish candlesticks. Traders can infer from this chart that the bulls are in full charge of the market and these two large bullish candlesticks have created a double bottom chart pattern.
Resistance line
The resistance level is illustrated by a horizontal line which connects bearish candlesticks. The chart shows that the bears were able to create long bearish candles downward of the resistance level. Traders can infer from this chart that the bulls were overwhelmed by the selling pressure of the bears.
Bullish Uptrend
Traders can see in this chart that each time the prices reached the upward sloping trend line a big bullish candlestick was formed. The bulls were very willing to buy and were able to keep the upward trend. During asset price uptrend traders can put in action a bullish strategy and to buy a Call option.
Bearish Downtrend
Traders can see in this chart that price movement up into the downward trend line was met by a big bearish candlesticks. During asset price downtrend traders can use bearish strategy and to buy Put option.
When traders use bullish or bearish strategy it is important to note that assets price will move in the same direction for a period of time and it is traders’ responsibility to predict when a shift in the trend will occur.
Candlestick is the most common chart for binary trading and every trader should learn how to use it. You can test your skills by opening a demo account in binary options broker.
Learn more about how to analyse candlestick charts and to improve your trading skills.
