Simple candlestick formations are an easy way to find profitable trading opportunities for binary options. Newcomers to binary options should learn how to recognize and trade simple candlestick formations – there is hardly a way to uncover the market’s insights that combines effectiveness and learnability as well as simple candlestick formations.
Simple candlesticks formations are so easy to learn because they consist of only candlestick. Since there are limited possibilities to what a single candlestick can do, simple candlestick formations are easily understandable and limited in number.
Nonetheless, simple candlestick formations allow for deep insights into the market. They help you to understand you how demand and supply work and how traders think. If you understand simple candlestick formations, every new candlestick in a chart will tell you a story that helps you to understand what is going on in the market.
Let’s take a look at which simple candlestick formations you have to know. If some of the terms confuse use, take a look at our article explaining the essentials of a candlestick chart, it will help you out.
The big candle is a candlestick with an especially large body with the opening price and the closing price near the absolute high and low of the candlestick. Most of the candlesticks near the big candle are smaller, most importantly they have smaller bodies.
During the big candle, prices obviously moved strongly in one direction for the entire period. Since they closed near the end of the candlestick, it is reasonable to expect prices to continue to move in the same direction in the next period. Therefore, the big candle predicts that the current price movement will continue with the next candlestick.
The big candle works both ways, indicating an upwards movement after an upwards big candle and a downwards movement after a downwards big candle.
Dojis are candlesticks where the opening and the closing price of a period are close together, which creates a very small body. Compared to the body, the wick is significantly longer, indicating that prices moved far from the opening price but then retreated again.
In a dragonfly doji, the body is near the top of the body. This means, prices started to fall but eventually rose again near the end of the period. It is therefore likely to assume that the market will carry its momentum over to the next period and create another period of rising prices.
In an upwards trend, the dragonfly doji indicates that the market went through a brief consolidation and is now ready to resume its main trend direction. In a downwards trend or a sideways movement, a dragonfly doji could indicate the beginning of an upwards movement.
The exact opposite of the dragonfly doji, the gravestone doji, signals a beginning downwards movement or the continuation of an upwards movement.
The Hammer is a candlestick with a white body near the top of the candlestick and a longer wick underneath it. In a downwards trend it is a sign of bullish tendencies and can be an indicator for a reversal.
The mirror image of a hammer, the inverted hammer, is a white body near the bottom of a candlestick with a long wick on top. In an uptrend, the inverted hammer indicates beginning bearish tendencies and can be a first sign of a reversal. With an especially small body, the inverted hammer becomes a shooting star – an even stronger indication of a reversal.
A hammer formation in a downwards direction, is called an inverted black hammer and is considered a bottom reversal signal. After a downtrend, an inverted black hammer can indicate the beginning of an uptrend.
Similar to the Hammer, the long lower shadow has a long lower wick, which is a strong indication for a reversal. Near a support level, the long lower shadow is a strong indicator for a beginning upwards movement.
The opposite of the Long Lower shadow, the Long Upper Shadow formation, is equivalent to an inverted hammer with a longer wick. It is a strong indication for a beginning downtrend.
The marubozu is a full candlestick with no wick at the top or at the bottom. Indicating a strong price movement that is likely to continue, the marubozu a continuation pattern that works in both directions, up and down.
With especially long wicks in both directions, the long legged doji is a formation that occurs when strong market forces fight to pull the price into their direction, but are still kept in balance. You should watch for which direction the market will break out of this balance, as it could be the beginning of a strong movement. Most trader use the upper and lower end of the long legged doji as the benchmark. As soon as the market breaks either price level, this is the direction you should invest in.
With these candlesticks, you will be able to understand the market much better. Take the time to learn and master them, and you will soon be able to trade more profitable.
Once you have mastered simple candlestick formations, we recommend you move on to more complex candlestick patters. Complex candlestick patterns consist of more than one candlestick and can take your trading to the next level. Read about complex candlestick formations here.