Japanese Candlestick Charting For Binary Options
There are many ways to view financial charts. Point and Figure, High/Low bars and mountain are only a few. I get asked all the time what the best method of viewing charts for binary options trading is and I always say candlesticks. Candlesticks are the best way to trade binary options for several reasons. First and foremost it is because of how easy it is to see the market and market action. This is facilitated by how the candlesticks are formed and what they mean. At heart candlesticks are binary in nature, just like binary options. Candles are bullish or bearish, up or down black or white. Binary options trading is just the same, bullish or bearish up or down high or low black or white.
What Are Japanese Candlesticks
Japanese candlesticks are a method of plotting financial prices that began several centuries ago in feudal Japan. Candlestick charting originated in the same place as futures trading, the rice markets. There is not much difference between candlestick charts and standard high/low bar charts but that difference makes all the difference. A standard high/low bar chart displays prices in a way that each days openings, high, low and closing prices are easy to see. A candlestick chart displays those same daily features but in a way that is even easier to read than bar charts. Not only that, candlesticks are useful tools for trend identification and price patterns, can be used in any time frame successfully and can be applied to any trading strategy.
How Do You Read Japanese Candlesticks
Japanese candlesticks are read in the same way as a standard high/low bar. Each candles starts with the opening price and then traces a path that includes the daily high, the daily low and the closing price. The difference between high/low bars and candlesticks is that where high/low bars resemble a stick man candlesticks have more dimension and are color coded. A candlestick in which the closing price is higher than the opening price is white (usually) and a candlestick in which the closing price is lower than the opening price is black (usually). Most charting packages will allow you to customize the colors of the candles for maximum effect.
Basic Japanese Candlesticks For Binary Options Trading
There are four basic types of Japanese candlesticks for binary options traders to be aware of. Each of these basic types have variations and they can all be used by themselves or in conjunction with each other. The basic types are Long White Candle, Long Black Candle, Spinning Top and Doji.
- Long White Candle - The long white candle is one in which the market opens, moves higher and closes higher. This candle can form when the market is bullish and moves strongly upward, when the market hits support and then bounces or any time that buyers outweigh sellers. It forms the strongest signal when it comes at or near significant areas of support or resistance.
- Long Black Candle - The long black candle is the exact opposite of the long white candle. It forms when the market opens, moves lower and closes lower. It is a sign of bearishness. It can form when the market finds resistance or a top, in a downtrend when the market is moving steadily lower or any time when sellers out weigh buyers. Like the long white candle the long black candle creates the strongest signal when it forms near a previously identified area of support or resistance
- Spinning Tops - Spinning tops can be either white or black candles. They form when the market opens, move with a small range and closes near to where it opened. These candles are sign of indecision in the market and occur when neither bulls or bears are feeling strongly one way or the other. Spinning tops can form during up or down trends, above or below support/resistance and any other time when the markets are in or are nearly in balance.
- Doji Candle - Doji candles are one of the most unique candles. Dojis are a sign of balance in a strong market and often occur at major turning points. A doji forms when the market opens, moves strongly in one direction, then strongly in the other direction and then closes at or very near the previous day’s close. Doji’s are the one type of candlestick that are neither white or black. Like all candlesticks, doji’s give the strongest signal when they form at or near support and resistance levels.
How To Use Japanese Candlesticks In Binary Options Trading
Japanese candlesticks have many uses in binary options trading. They can be used to help determine trend, support and residence, price patterns, momentum and to generate long/short term trading signals. In fact, Japanese candlesticks may be the most useful tool in the technical analysis arsenal for binary options or any other kind of trading.
- Use them to draw trend lines and support/resistance lines just like you would use high/low bars. Experiment with using the top of the body and the top of the wick for drawing lines.
- You can also use candlesticks with Fibonacci Retracements, Fans or Arcs to look for or confirm potential areas of support and resistance or turning points in the market.
- Japanese candles can be used to identify price patterns. The easy to read format makes it much easier to see the patterns form than with high/low bars. Another bonus to candlesticks is that there are many more identifiable patterns and signals than with high/low bars.
- Candlesticks can be use to measure momentum. If the candles in a series get progressively shorter than momentum is declining, if the candles are getting longer then momentum is increasing.
- Candlesticks can give a wide variety of signals that can be used for long and short term trading signals. Rising three methods, three black crows, tombstone doji’s and dragonfly’s all have short and long term implications for binary options trading.
- Candlesticks can be used in any time frame and applied to any strategy. The best signals of any system come when they are confirmed in more than one time frame and that is true of Japanese candlesticks too.
Japanese Candle Chart Techniques For Binary Options Trading
A new candle forms every day the markets are open. Depending on the daily news, the state of the economy and the current trend these candles could be from any one of the four major groups. Just because a long white candle or a dragonfly doji forms does not necessarily mean the charts are signaling a trade. A doji that forms when an assets prices are near the middle of a trading range is not as important as one that forms when prices are testing a long term bottom. Likewise, a doji forming at a long term bottom is not as strong as a doji that forms at a long term bottom accompanied by 4 times average daily volume and a major economic announcement. Reading and interpreting Japanese candlesticks, though easy, still takes some time, experience and practice.