Learning how to read the Charts is an essential part of binary options trading as the charts serve as the primary technical analysis tool. Candlestick charts are the preferred chart type among traders, for this reason alone it is important to become familiar with them.
WHAT ARE CANDLESTICK CHARTS?
Candlesticks can be highly valuable information for binary options trades, as candlesticks patterns can give a great deal of information when forecasting price direction. The beauty of candlestick charts is that they can be used to trade short term, ultra-short term, medium term or long term. Information from one or two candles is enough to deliver bankable signals to the trader.
These charts are comprised of a body (the main coloured bar), an upper wick (the thinner line coming out of the top of the body), and the lower wick (the thinner line coming out of the bottom of the body). The body’s colour depends on where the specific candlestick opens and closes.
So traders can find information such as High, Low, Open and Close for the given time period. When charting at different time frames, (most charting platforms will offer scales from one minute to one month) a single candlestick always represents a single unit at that time scale. So at the one minute scale each candlestick describes all of the price activity that took place within that minute (the same goes for five minute charts, hourly charts, all the way up to monthly charts).
The shape and chart of each candle-stick bar represents the underlying asset’s price cycle and trend for a give time frame.
A bullish candle is one where the close price is above the opening price
A bearish candle is one where the close price is below the opening price.
Usually you will find green (or white) candles representing bullish activity. The red (or black) candles represent bearish activity which is when the price has gone down.
The height of a candlestick represents the buying and selling volume. The taller the candlestick, the more buying and selling volume took place. If the opposite, the shorter it is, the less buying and selling volume took place.
1) Long Body Shape indicates a a trend and depending on the color will give us specific info about the asset.
a GREEN long body indicates that buyers are in control and the price is moving up.
a RED long body indicates that sellers are in control and the price is moving down.
2) Short body Shape indicates that there is uncertainty in the market and as the body becomes shorter the harder it becomes to predict if the buyers or the sellers are the strongest side at the moment.
3) No body – When this happens, it represents indecision or hesitation in the market. The market is considered to be an ongoing battle between buyers and sellers.
Candlesticks come in a variety of different shapes and sizes. Becoming familiar with all the different candlestick variations is pivotal. In the following sections we will provide a comprehensive breakdown of all the different types of candlesticks and what their appearance in an asset’s price chart suggests.
- Green Body – uptrend, bullish movement.
- Red Body – Downtrend, Bearish movement.
- Open – The first price level.
- High – The highest price level during the cycle.
- Low – The lowest price level during the cycle.
- Lower Shadow – The edge of the lower shadow is the lowest price.
- Upper Shadow – The edge of the upper shadow is the highest price.
- Range – The range is calculated is the distance between the highest and lowest price.