If you have been trading in Binary options for a long time, you might be well versed with the concept of candlesticks. The candlestick charts were quite famous in the Japanese market, even before they became famous in the Western world.
Candlesticks are one of the most crucial indicators used by traders to monitor the movement of the market and analyze data to make future predictions. If you start analyzing the various analytical tools used for trading, you will observe that candlestick charts are used by most of them due to their user-friendly approach.
In this article, we will be discussing how to predict the next candle with binary options to understand whether the market is bullish or bearish. If you are new to trading, this article is for you, as binary options are the safest markets to invest in.
To start experimenting and learning the basics of trading, you can sign-up on Quotex and start trading without losing any money.
What you will read in this Post
What are candlestick charts in binary trading?
Candlesticks are one of the most advanced technical tools used by traders to understand and predict the market’s movement. They can present you the data from across various time frames in just a single candlestick.
The patterns created by the candlestick’s position, volume, and size help the trader understand the resistance levels and key support. It helps them in making an informed decision to minimize the risk factor while trading in binary options.
A candlestick represents the price of the chosen asset with its body in a specific time frame. The wick and shadow on the candlestick highlight the high and low price of the asset. Thus, the green-colored candle represents a price rise, and a red-colored candle highlights the lowering of the price in the market.
The patterns of these candlesticks help in understanding the investing and selling opportunities of the traders—the predictions of the next candlestick help in understanding whether the market is bullish or bearish.
How to predict the next candle with Binary Options?
If you want to make profits in the trading market, it is advised to trade in the market’s direction. Before starting in deep details, the best method to interpret a candlestick is to analyze the position, volume, and relative size of the candlestick.
#1 Rising three methods
The rising three methods are some of the easiest methods used for candlestick prediction. Once you learn the basics of this methodology, the pattern will pop out to you whenever it starts forming on the chart.
The rising three methods are forming five candles and one candle that requires to be close to the final candle to be valid. This pattern can be both bullish and bearish. The first candle is always a white one closed near the shaven or unshaven top. The next three candles are small with spinning tops that are either white or black.
They are seen to fall for three days but not below the first candle. Now moving on to the fifth candle, it will start above the low point of the first candle. It has the highest close of all the five values. This signal has a 70% success rate in this strategy with an expiry of 2-5 candles from the purchase.
#2 Side by side lines
Side-by-side lines are a pattern with quite a high success rate. It comprises two bars of while color standing side by side on the chart.
When the trend is facing upwards, the first white candle will always be high at the end of the day. This is because the candlesticks will have a good volume highlighting a moderate price rise. Therefore, the second candle of the same color will start at the same level as the first candle and close near the high at the end of the day, or it may even cross the length of the first candle.
The two white candles with a good volume are an indicator of the increasing strength of the market. This strength is seen to precipitate soon. Thus, the traders are always on the lookout for this trend.
Tips: The credibility of the signals building is always subjected to the time frame. The signals generated in 5 minutes will have more noise than the signals produced in one day.
#3 Tatsuki gap
Just like the rising three methods, the Tatsuki gap also comprises up to five candles. The Tatsuki gap can be formed in both bearish and bullish markets; the only factor in identifying this pattern is a visible gap indicating the market’s resistance or support.
This trend is usually formed when there is a gap formed in the prices along the market’s direction. For example, if the market is down, the gap will also be downward and vice versa. In the case of the down market, the candle will be having a high volume and black, closing near or at the low of the day.
The next few candles are seen to open at a value above the first candle to test for the resistance in the market. One can decide to enter in this indication, but a confirmed resistance highlights the second drop in the market. This signal is having a 65% success rate in market prediction.
(Risk warning: Your capital can be at risk)
Predicting a bullish market
You need to keep an eye on three major patterns on the candlestick chart for predicting a bullish market. These are as follows:
- Bullish Engulfing Pattern: The bullish engulfing pattern is formed on the candlestick chart when the number of buyers is more than the number of sellers in the market. It is represented by a long green bar and a smaller red bar.
- Hammer: In the hammer case, the candlestick has a shorter body and a long lower wick. It indicates that the buyers have increased the selling price, and pressure is built on the seller’s market. In this case, the next candlestick is always a green one.
- Inverted Hammer: In the case of the Inverted hammer, the upper wick is seen to be longer, indicating the buying pressure in the market. The sellers drive the prices down, and the buyers rule the market in this case.
The bullish market trend is known for indicating a reverse gear from a downtrend to an uptrend. This pattern is meant for traders looking to enter and hold on to the assets for a longer period.
Predicting a bearish market
You need to keep an eye on three major patterns on the candlestick chart for predicting a bearish market. These are as follows:
- Bearish Engulfing Pattern: The bearish engulfing pattern is seen to be formed at the end of the upward market trend. In this case, the green candlestick is followed by a large red candlestick, highlighting the fall in the market. It is an indicator of the downward trend of the market.
- Shooting Star: A shooting star has a similar shape to the hammer, but the candlestick is in red. This pattern is created when the closing price is a little bit higher than the opening price.
- Hanging Man: The shape of the hanging man is similar to the inverted hammer highlighting the start of a downtrend in the market. It highlights that the buyers manage to increase the prices even when there was huge selling pressure in the market.
Frequently asked questions:
How is the range of a bullish candlestick calculated?
The range of the bullish candlestick is calculated by measuring the distance between the upper shadow and the lower shadow. It will highlight the price move during that particular duration. You can also subtract the lower price from the higher price to measure the range.
What is a bearish doji candlestick?
The bearish market is represented by the Bearish Doji Star that highlights a reversal pattern in the market. The first reading is a long green candle that is followed by a fall in price. It indicates the selling of assets on the chart during the downtrend market.
In this article, we discussed the prediction and reading of the candlestick charts to improve our analytical and data predicting skills. It will take a while to look for patterns and make predictions on the chart, but with regular practice and experimentation, you will reach the level of an advanced trader.
If you are new, you need to start looking for patterns on the chart regularly consciously. You can start experimenting with your pattern mapping skills on Quotex by signing up and practicing investing without losing any money.
Trading is a complex domain, and it takes years and years of practice to understand the market. Still, the trading market is highly subjective and is subjected to various risks, but you can certainly minimize them by taking calculated risks and finding a balance. Furthermore, see my other articles about strategies.
(Risk warning: Your capital can be at risk)