There are a multitude of different ways to analyse the markets for potentially successful binary options trades. These are usually categorised as either technical or fundamental methods of market analysis which give traders an insight in to the future direction of price in financial markets. Although these are not always 100% reliable, they give traders and important edge and can be applied very successfully to binary options trading in terms of predicting if price will be higher or lower on any given time frame. One of the most effective ways to use a specific analytic technique is to utilise the ‘candlestick’ charting option provided by many online brokers and software programmes.
What are candlesticks?
Trading with candlestick charts has been used successfully for several centuries; initially being applied by Japanese rice traders as a way to speculate on its future commodity value. The concept is both simple and effective, with each price bar representing the open, close, high and low of any particular price bar. The main ‘body’ of the candle consists of the relationship between the opening and closing price of that bar, with the typical default colours of a green body representing a higher close and a red body showing that the market has closed lower. The candle ‘wicks’, which often extend from each end of the body of the price bar, reflect the high and low of the time period and which provide additional information about the price-action in the market to the trader.
Incorporating candlesticks in to your trading strategy
Using candlesticks effectively with traditional higher or lower binary options can range from applying some of the most basic, but powerful, candlestick analysis through to complex trading systems of which candlesticks make up just one element. Focusing on the most straightforward technique’s, candlesticks can be used to determine if the market is going to move higher or lower in the near future. The way that they do this is by providing an indication of the price action which occurs within each candles time period. This creates familiar-looking candle patterns which, to those who know what they are looking for, can provide a strong indication that purchasing higher or lower binary options will have a high likelihood of success.
Candlesticks are great for spotting market reversals
Using candlesticks to spot market reversals can be one of the most reliable ways to be profitable trading binary options. Candlestick patterns such as ‘shooting stars’, ‘abandoned baby’ and bullish and bearish ‘outside bars’ are some of the most reliable indications that the current trend is becoming exhausted and a reversal or correction is highly probable. These candles either operate in isolation, such as the long ‘wick’ on a shooting star candlestick, or form a pattern of several candles which then create a familiar trading pattern.
Candlesticks and key levels provide the best trading opportunities
Combining candlesticks with key levels on trading charts is undoubtedly the most powerful price action analysis available to binary options traders. Key levels are created where many other traders place their purchase orders in the market and form important areas of support and resistance. Of these, the most important are daily pivot levels, Fibonacci retracement levels and psychologically-important zones such as round orders. These areas become even more significant when candlesticks begin to form familiar reversal or continuation patterns close to these areas. Whilst most traders know approximately where the majority of orders lie in the market, how the market will react to these is something that gives candlestick traders an edge in predicting which way price will move when it comes in to contact with these zones. For binary options traders, this provides an excellent opportunity to confidently predict lower or higher when price reacts at these key levels