Using candlestick charts with binary options

Although binary options trading is one of the most recent ways to make large profits speculating on the future direction of markets, some of the techniques which inform our decisions have been around for a considerably longer time. Candlestick charting analysis, for example, has been used for literally hundreds of years with Japanese rice traders successfully using the method from as far back as the 1600’s. This time-tested technique is not only one of the most straightforward and effective ways to analyse price charts, but the fact that so many traders observe candlestick patterns makes it especially reliable.

Candlesticks can be powerful individually or in groups forming patterns

Candlesticks refers to the shape of the price bars on a price chart, forming a ‘body’ with the open and closing price of the bar and two ‘wicks’ showing the high and low of the bar.  The information that these candles individually and collectively convey, allow binary options traders to predict the short-term direction of the market. Successful trades can be taken when just a single candle suggests that a price reversal may be about to occur. These individual candles usually occur at the end of a move higher or lower, when the market is overstretched with buyers and sellers moving in to create popular reversal candles such as shooting star.

Candlesticks can be at their most powerful when a group of candles creates a pattern indicating a potential trade setup. This is where the age and reliability of candlestick trading can really be taken advantage of as the cyclical nature of financial markets means that these patterns will have occurred previously and traders know exactly what to expect following the pattern. There are many setups available for binary options traders to learn and these can be grouped broadly in to continuation and reversal patterns. Learning to distinguish between these will open up a world of potentially very profitable trades.

Why is candlestick analysis good for binary options traders?

Due to the fact that binary options trading is often simply about whether an underlying asset will move slightly higher or lower during the life of the binary options, candlestick analysis can be a particularly effective trading method. Whilst forex traders are consistently focused on the degree of the price move (i.e. how many pips), a binary options trader simply needs to side with the majority of traders in the market for a small movement in one direction. Therefore, reversal candlestick patterns, for example, only need to provide a momentary correction in the market rather than a full-on reversal, in order for the options to expire in the money. Similarly, continuation patterns formed on a candlestick price chart will only need to provide a short-term continuation in the trend, for the lifetime of the binary options, in order to be successful.

It is not necessary to learn every candlestick pattern available, but just focusing on two or three, and being able to spot these in live market conditions can help to improve the chances of success in trading binary options.