To find profitable investment opportunities for binary options, you have to analyze the market. While we have all seen price charts on TV and on the internet, most of these price charts displayed price movement as a simple line. Learn all about binary options candlesticks here!
There are, however, better ways to display price movements, ways that allow you to immediately extract information that would have been forever hidden with a line chart. The best of these ways is using candlesticks.
Binary options candlesticks provide a number of advantages that make them the ideal tool to analyze the market. Those advantages are:
1) Price charts that display price movements as a simple line provide little information other than a rough indication on what the price did in the past. Candlestick, however, work as an indicator in themselves, thereby allowing you to make better predictions about future price movements than any other type of price chart. Many traders even trade based on candlesticks alone.
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2) The easiest and quickest way to use candlesticks as indicators for future price movements is to trade simple candlestick formations. Simple candlestick formations consist of only one or two candlesticks, but still allow predictions about what will happen next in the market.
Simple candlestick formations are quick to learn and even complete newcomers can start making successful trades after learning only a few simple candlestick formations. Once you learn to securely recognize and interpret simple candlestick formations, one look at a price chart is often enough to understand what an asset is doing, whether it is a good investment right now, and where its price will go.
There is hardly a tool that allows such easy but powerful predictions as simple candlestick formations.
3) Just as there are simple candlestick formations, there are also complex candlestick formation. Complex candlestick formations are bigger and contain more candlesticks than simple candlestick formations. Some complex candlestick formations consist of three candlesticks, some of 10, and some very large examples contain as much as 50 or more candlesticks.
While complex candlestick formations take longer to develop than their simple counterpart, they allow for more accurate predictions.
4) Candlestick formations are completely invisible in line charts. Therefore, line charts rob you of a proven way to make predictions about the market’s future without providing any advantage to make up for it.
Successful trading requires you to identify as much valuable information as possible. With candlesticks you are always one step ahead of the market and two step ahead of everyone who uses a line chart.
5) Binary options candlesticks are what experts call leading indicators – they indicate changes impending changes in price direction long before most other indicators can pick them up. Aside from candlestick formations, candlesticks allow you to assess a market’s trading range in one view. This is one of the earliest indications of a changing market environment, allowing you to recognize upcoming changes long before a line chart would allow you to.
Learning candlestick formations can boost your binary options success, and we highly recommend to read our article about them. But even outside of predefined formations, every single candlestick has a story to tell that can help you to understand the market and make better trading decisions.
To know what has happened within a candlestick, there are two components of a candlestick that you have to understand: the body and the wick. Let’s look at these components one by one.
1) The body: Some candlesticks have almost no body. Those candlesticks are called dojis and often indicate a change in market sentiment and the end of the current movement.
2) The wick (sometimes the wick is also called the shadow): While not as significant as a candlestick’s body, the wick can still tell you an important story in any of these two situations:
a) A missing wick on one side
A missing wick is an indication of a strong movement that is likely to continue. To create a wickless candlestick, the market has to open or close right at the wick’s price, with all its movement either pushing the market upwards or downwards. This movement is likely to continue in the direction of the candlestick.
b) A long wick on one side
Another strong indication is when the wick is longer than the candlestick’s body. In this case, the market must have moved far in the direction of the wick, but then have lost its momentum, thereby forcing it to turn around. This turnaround movement is likely to continue with the next candlestick, thereby indicating a movement away from the wick.
On long time frames, a long wick could simply mean that the market went through a perfectly normal correction that will soon end, allowing prices to continue in their main direction. On the short time frames that binary options use, however, a wick is a strong sign. You should either invest in the direction of the movement away from the wick or wait until the movement is over.