Introduction to CandleStick Charts, Price Action and Binary Options
Learning how to read the Charts is an essential part of Day-trading and OTC trading as the charts serve as the primary technical analysis tool both with Forex and Binary Options Trading. In this guide you will find a video and a detailed article explaining the components of the Candle Bar, The Theory behind Price Action Trading and various examples and the application of the Candle-Stick Charts with Binary Options.
Price Action Theory and the Candlestick Charts
Technical Analysis has been used as early as the 17th century in Japan with the Rice Trade and later on developed in the West in the beginning of the 20th century by Charles Dow who published several books covering the Technical Analysis Theory which was focused exclusively on charts. In the early 90’s Technical Analysis transformed and reshaped further with the use of statistical analysis and web-based techniques including the use of advanced technical analysis calculators.
The Price Action Theory deals with the question of “How the price is moving” while Fundamental Analysis deals with “Why the price is moving”. The “How” doesn’t take into account macro-economic affects on the price movement, the underlying asset’s financial health or any other factor besides the relationship between the price levels and the Candlestick Charts. This visual representation of the “How the price is moving” provides us with an insight to the underlying asset’s price trend. The indicators that are taken into consideration are purely derivative of price.
How to use Candlesticks Charts with Binary Options
Now that we understand the theory behind the ‘Price Action’ we can learn how to use of charts and discuss the application of the charts with Binary Options Trading. It’s crucial to understand that the graphs embedded on the broker’s platform are limited and display solely the estimated price level of the price while the expiry is synched with Thomas Reuters and reflects the accurate price expiration of the underlying asset, but since the price levels during the set ‘time-frame’ for the trade are not accurate, it’s important to use real live charts which can also give us an insight into the price trend. The good news is that these charts are available free on many websites and for a more advanced charting solution, traders can also download the Meta Trader4 which can be used with your Binary Options Platform.
In the following video I go over the components of the Candle-Stick Charts and it’s application with Binary Options Strategy and below you will find different examples for Candle-Stick Charts as each shape can indicate different price trends.
- The shape and chart of each candle-stick bar represents the underlying asset’s price cycle and trend for a give time frame.
- The candlestick charts are used to indicate if the “Bulls” or the “Bears” are in control at a given point in time.
- The price cycle represented by the Candle display the open, high, low and close for the give time.
- The Individual Candlestick bar can display a time period of a minute, 15 minutes, 30 minutes, 60 minutes and up to a month. The Charts time can be switched manually.
Green Body – uptrend, bullish movement.
Red Body – Downtrend, Bearish movement.
Open – The first price level.
High – The highest price level during the cycle.
Low – The lowest price level during the cycle.
Lower Shadow – The edge of the lower shadow is the lowest price.
Upper Shadow – The edge of the upper shadow is the highest price.
Range – The range is calculated is the distance between the highest and lowest price.
Examples of Candle Stick Shapes
1) Long Body Shape indicates a a trend and depending on the color will tell us if buyers or sellers are currently in control.
- Green, long body indicates that buyers are in control and the price is moving up.
- red, long body indicates that sellers are in control and the price is moving down.
2) Short body Shape indicates that there is uncertainty in the market and as the body becomes shorter the harder it becomes to predict if the “bulls” or the “bears” are in control.
3) No body (plus shape) – referred to as Doji is when the trend is completely neutral, not the buyers or the sellers are in control.
Candle-Stick Charts the Binary Options Strategy
In one of my earlier videos I covered a popular Binary Options Strategy, the ‘Double Profit’ in which we seek to identify a neutral trend, a Doji, and enter several Put and Cal trades during the hourly time frame. The charts can indicate if the neutral trend is strong and when we can spot consecutive Doji shapes on our Candlestick Charts it is safe to predict a neutral trend and apply the ‘Double Profit’ Binary Options Strategy. The observation and back-tracking of the option’s trend is critical for hourly short-term trades, which are influenced primarily by these market sentiments displayed in the charts. For more details, check out my ‘Double Profit’ Strategy lecture hosted on my YouTube Channel.
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