WHAT IS A CANDLESTICK? AND READ THE CANDLESTICK CHARTS
A candlestick is a graphical representation of price movements in financial markets. It is formed by the open, high, low, and close prices of a specific period of time, such as one minute, one hour, one day, etc. Each candlestick typically consists of a rectangular body and two thin lines, called shadows or wicks, extending from the top and bottom of the body
: HERE'S A BREAKDOWN OF THE COMPONENTS OF A CANDLESTICK
1. Body: The body represents the price range between the open and close prices during the given time period. If the close price is higher than the open price, the body is typically filled or colored green, indicating bullishness. Conversely, if the close price is lower than the open price, the body is usually empty or colored red, indicating bearishness
2. Upper Shadow (Wick): The upper shadow represents the highest price reached during the period. It indicates the highest price at which traders were willing to buy the asset but failed to sustain that level.
3. Lower Shadow (Tail): The lower shadow represents the lowest price reached during the period. It indicates the lowest price at which traders were willing to sell the asset but failed to maintain that level.
Reading candlestick charts involves interpreting the patterns formed by consecutive candlesticks. Traders look for various patterns and formations, such as Doji, engulfing patterns, and hammer, among others, to make trading decisions. These patterns can signal potential changes in market direction or continuation of existing trends.
In summary, candlestick charts provide valuable insights into market sentiment and price action. By understanding the anatomy of candlesticks and how to interpret them, traders can gain a better understanding of market dynamics and make informed trading decisions.
A BASIC UNDERSTANDING OF CANDLESTICKS & THEIR PSYCHOLO
For every price action trader and naked chart trader, the candlestick plays the main role to understand the market direction. There are some basic candlestick types you must understand before your start trading in binary options.
Healthy candle
A candle with a healthy body having small wicks is known as a healthy candle
Marubuzu candle or big candle
Marubuzu candle is very big in size therefore we must avoid trade on the next candle. The causes behind the big body formation of the Marubuzu candle could be either a big power or exhaustion.
In the buyer's case, either it could be the big power of buyers or the exhaustion of buyers. And same for the seller's case, either power of sellers or the exhaustion of seller.
As per candle psychology, big power indicates that the probability of next candle would be continuation candle and exertion means it’s a high probability that next candle would be reversal candle. Therefore, it is highly advisable to avoid trade on a candle after the Marubuzu candle .
Doji candle
A candle without a body is known as a Doji candle. This candle is also called an indecision candle. The formation of a Doji candle is because of equal pressure of buyers and sellers. The opening and closing price of the candle would be the same
The colour of Doji doesn’t matter as the working of all Doji candles is the same. It is highly advised to avoid trade on the next candle after the Doji candle except for some sure-shots signals based on the Doji candle. You will know in detail about these sure-shots signals late.
Spinning Top
A candle with a small body having long wicks on both sides is called a spinning top candle. This candle indicates indecision for the next candle formation.
Hammer
There are two types of hammers, hanging man or normal hammer and inverted hammer. A candle having its wick 2.5 times bigger than its body, is called a hammer candle
As per the candlestick psychology, the hammer works differently in the trending market and different in a ranging marke
Hammer is a dangerous candle for trading therefore we advise you to avoid trading with this candle except for some sure-shots signals provided in this artic
Tailless candle
As the name suggests, a candle without a tail is known as a tailless candle. A tailless candle is a very strong candle therefore, the probability for the next candle would be a continuation candle, but it depends on other factors too. We will trade with a tailless candle but only with the help of sure-shot signals provided
Shaved candle
The Shaved candle is a candle without wicks. This candle gives us very little knowledge about the next candle formation so we avoid trading with this candle.
Pin Bar candle
Bearish Shaved Candle A pin bar is a Japanese candlestick that has a long wick (tail) on one side and a small body. The area between the open and close of the pin bar is called its “real body”, and pin bars generally have small real bodies in comparison to their long tails. The tail of the pin bar shows the price rejection.
HOW TO IDENTIFY PATTERN IN CHADLE
Understand Chart Type (line, bar, pie, scatter, histogram)
Focus in the market chart
Identify Trends (Down and Up Trend, stock area
Use Reference Lines/Band
Apply regression analysis, moving averages, or trend line
If you work in your learn then easy to identify candlestick pattern in chart
WHY CANDLESTICK PATTERNS MATTER IN BINARY TRADING
Candlestick Patterns Provide Visual Cues for Price Action
Candlestick patterns graphically represent price movements over a specific time period, providing traders with a visual representation of market behavior. By identifying patterns in the candlesticks, traders can gain insights into potential market trends and make informed trading decision
Identify Levels Support and Resistance
Candlestick patterns can help identify support and resistance levels, which are critical price points where the market tends to reverse or bounce. By recognizing these levels, traders can determine potential entry and exit points for their trades
Predict Market Trends
Certain candlestick patterns are associated with specific market trends. For example, a bullish engulfing pattern indicates a potential reversal from a downtrend to an uptrend, while a bearish engulfing pattern suggests a reversal from an uptrend to a downtrend
Confirm Trading Signal
Candlestick patterns can serve as confirmation signals for other trading indicators or strategies. By combining candlestick analysis with other technical tools, traders can increase their confidence in making trading decisions
Timely Market Entry and Exit
Candlestick patterns provide traders with timely insights into market movements. By recognizing patterns as they form, traders can enter and exit trades at optimal points, maximizing their profit potential and minimizing losses
Examples of Candlestick Patterns in Binary Trading
BULLISH ENGULFING: A bullish candle completely engulfs the previous bearish candle, indicating a potential reversal from a downtrend to an uptrend
BEARISH ENGULFING: A bearish candle completely engulfs the previous bullish candle, suggesting a potential reversal from an uptrend to a downtrend
HAMMER: A candle with a long lower shadow and a small body, indicating a potential reversal from a downtrend to an uptrend
HANGING MAN: A candle with a long upper shadow and a small body, suggesting a potential reversal from an uptrend to a downtrend
DOJI: A candle with a small body and no shadows, indicating indecision in the market
RISK MANAGEMENT STRATEGIES
1. Determine the position size
How do you decide on the amount of the investment? If this decision is not carefully considered and you simply wing it, it means that you let your emotions take over. This approach is harmful and dangerous, because it increases the chances of losing your entire capital without even noticing
Instead, decide how much you are willing to risk in each trade and stick to it. For example, if your total portfolio is $100, and you are willing to risk no more than 1%, it means that your investment in one trade should not exceed $3. As your capital increases or diminishes, don’t forget to recalculate the investment amount. Do not deviate from the decided amount, even if it’s tempting. It is far easier to not lose your funds than to try to regain them bac
2. Set realistic daily goals
When beginning your daily trading session, decide on your profit goal for the day. Make it realistic and achievable. Reaching a smaller goal will give you more satisfaction than setting an unrealistic target and failing to get even close to it.
What is a realistic profit goal? This will depend on each individual trader, their approach and skills. However, trying to double your capital in one day is definitely not a realistic target. Make sure to set a goal that feels appropriate to you and stick to it
3. Choose a strategy and stick too
If you are trying to juggle several strategies and none of them is working for you, perhaps the reason is that you are not really following any of them. When picking a strategy, give it a real chance. Learn how it works, try it out on different assets, various timeframes and experiment to tailor it to your needs.
4. Practice, practice, practice
Among the described Binary Options risk management tips, this one is perhaps the most important. Use the practice account as much as possible, treat it like your draft where you can make mistakes, try different combinations, approaches, investment amounts, etc. Test out your strategy on the practice balance before you move on to trading with real funds. This will allow you to be sure of your trading plan and potentially avoid some mistakes and losses.
5. Risk Management Excel Sheet
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- Risk Mitigation: This tool helps traders manage their risk effectively by providing data-driven insights and allowing them to set risk parameters for their trade.
- Trade Optimization: By utilizing historical price data and predictive analysis, Masaniello Money Management aids in optimizing trading strategies for better return
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