Candlestick Charting Basics for Binary Options

We talked about charts that you could use for binary trading and saw how a stock table and a stock chart show the relationship of time and price. Stock charts as we said are in the time domain, where the price is a function of time. Stock charts are relatively real-time tools that can be used by the binary options trader to be able to correctly forecast a price range in a technical manner.

Candlestick charting for binary options is a widely used tool and technique that shows the different parameters of individual trades. A trader may say that candlesticks are more useful because they can get more details from this type of chart compared with a regular line trend. Many binary options traders have been successful with the use of candlestick charting.

All the online binary options trading platforms owe a very useful charting technique used today to the Japanese. More than 250 years ago, a futures trader named Sokyu Munehisa Homma developed a technical chart that uses the bar and point-and-figure analysis systems. Using rice as his commodity he developed this simple but effect technique of showing price movement and directionality.

Candlesticks may reflect short-term outlooks, but they can depict accurate representations of systems that can be rather difficult to understand. Start looking at a candlestick pattern and it can definitely tell you what’s going on about a stock. A candlestick chart, can easily be confused with a bar graph by the new trader. But think of candlestick charting for binary options as bar graphs integrated to a line graph. Now that sounds more detailed and useful.

Do you notice how a candlestick can have a wick on both sides? Candlesticks can also vary in length, depending on the usage. Well, candlesticks for binary options analysis has quite a similar structure to the physical candlestick. You will see in the following sections that there are two basic kinds of candlesticks, the positive and the negative. Again, these candlesticks represent one trading session.

Positive Candlestick

Let’s start with a candlestick where the price closed Up. This is called a positive candlestick.

Bullish Candle

The area of the positive candlestick which is green is called the Real Body or simply Body.

Bullish Candle - Real Body

The little line below the Real Body is called the Shadow.

Bullish Candle - Shadow

This particular Shadow is the Lower Shadow.

And, the farther point of the Lower Shadow is called the Low.

Bullish Candle - Low

The Low is the lowest price that a specific candlestick reached.

On a positive candlestick, the Open of the candlestick is the bottom of the candlestick’s Real Body.

Bullish Candle - Open

The Open is the price at which the candlestick first began to form.

The line above the Real Body of the candlestick is also called the Upper Shadow.

Bullish Candle - Upper Shadow

The farthest point of the Upper Shadow is called the High.

Bullish Candle - High

This is the highest price that this particular candlestick reached since it was formed.

The Close for the positive candlestick is the topmost part of the Real Body.

Bullish Candle - Close

And, the Close is the price where this specific candlestick closed or expired. The Close is also the point where another candlestick may begin to rise or fall.

The construction of a positive candlestick is easy to understand if you consider that the Open in the positive candlestick could begin to fall. During trading time it could have gone down to the Lower Shadow down to the Low. But then it starts to rise until it reaches the Upper Shadow and starts to fall on the High. But before the positive candlestick starts to closes, it will have to be higher than the Open. This point is the Close.

The Whole Bullish Candle

To sum up the previous paragraph, if a trade closes in a price higher that the Open, then a positive candlestick is constructed.

Negative Candlestick

A candlestick where a price went down is called a Negative candlestick. Now, negative here does not mean anything bad. You could place a trade on either a Positive candlestick or a Negative candlestick.

Bearish Candle

Again, the area of the Negative candlestick which is red is called the Real Body or simply Body.

Bullish Candle - Real Body

Bearish Candle - Real Body

The little line below the Real Body is still the Shadow.

Bearish Candle - Shadow

The farthest point of the Lower Shadow is also called the Low.

Bearish Candle - Low

The definition of Low is still the same as with the positive candlestick, where it is the lowest price that the candlestick reached.

On a negative candlestick, the Open is the uppermost part of a candlestick’s Real Body.

Bearish Candle - Open

The Open is the price at which the candlestick or trade began to form.

The line above the candlestick’s body is also called the Upper Shadow.

Bearish Candle - Upper Shadow

And, the topmost part of the Upper Shadow is still called the High.

Bearish Candle - High

The High is the highest price reached during the duration of the trade.

On a Negative candlestick, the Close is the most bottom point of the Real Body.

Bearish Candle - Close

The Close is the still price where this specific candlestick closed or expired. The Close is also the point where another candlestick may begin to rise or fall.

Understanding negative candlesticks is easy when you think of it this way. The Open is where a trade starts, and although this is a negative candlestick, it can still rise in the Upper Shadow until it reaches High. Then, it goes down until it reaches the Lower Shadow and Low. Finally it still climbs but closes at a point lower that the Open.

The Whole Bearish Candle

The candlesticks shown in this example are green and red. Many different binary options brokers may show different colors, but the principle of how to construct and read them remain the same.

Complete Japanese Candlestick Profile

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