What is a Candlestick? | Meaning, Definition and Example

A candlestick is a form of price chart or a single arch where the prices are displayed for some duration or period so that traders can analyze the price chart pattern and understand the movement of price trends.

Candlesticks in a nutshell

  • Japanese rice merchants developed candlesticks to keep track of market prices, which later became popular in the United States.
  • Candlestick charts featuring opening, high, low and closing prices help traders to analyse market movements.
  • The “actual body” of the candlestick shows the price positions, with the colours representing bullish (white/green) or bearish (black/red) trends.
  • Patterns like Doji, Hanging Man and Hammer help to predict market movements in binary options trading.

The history of the candlestick

The Candlestick was founded by a couple of Japanese merchants who were rice merchants looking for a way to track the market prices and the movement of these prices. Gradually, it became famous in the United States.

Defining the candlestick

As an important part of technical analysis, Candlestick is used by traders to understand the movement of market prices and track their movement. This is a type of chart for market prices that are used in a technical analysis consisting of open, high, low, and closing prices in a specific duration.

These charts are set according to various time periods so that a trader can pick out the most useful duration for their trading practice. You can make use of the candlestick chart from one minute to one month, depending on the necessity. Traders can use the patterns to understand the market movement by conducting a technical analysis.

Short-term traders usually focus on candlesticks with low time frames if they need to enter into a trade. However, professional traders set their charts for a longer time period so that they can analyze the trends properly. These candlesticks also become useful as alert machines if there is any change in the trend.

Candlestick has a wide part known as the ‘real body,’ which is responsible for disclosing the position of price, i.e., whether it is higher or lower than the opening price. If the stock was lower for the day, the Candlestick is black or red in color, denoting the meaning of low stock. However, if the Candlestick is white or green in color, it means that the stock closed higher than usual.

While the shadows of the Candlestick denote the highs and lows of the day, a shape would vary on their price relationship, i.e., whether they were high, low, or opening/closing prices.

Example of a candlestick chart

A candlestick is a single bar that explains the price movement through the color it represents. Therefore, if you see a whitish-colored candlestick, it shows that the buying pressure is tough, which means that the price is bullish or aggressive. For example, the long white candle would be meaningful if the price is high. But a long black candle would denote that there is a reversal in the pattern and the price is bearish. 

While the Japanese discovered this price chart ages ago, Candlestick eventually became responsible for gauging the investor’s emotions around their stock. It helped them in forming better trading decisions through the movement of prices in the chart.

The visual presentation provided by the candlesticks helped in the movement of prices along with providing important information to a trader. You can determine the trends with the help of Candlestick to trade better.

Popular Candlestick patterns

You can use candlesticks to indicate bullish or bearish movements. These patterns are used to predict either a continuation of the price, which indicates that the price will remain in its current direction, or a reversal, signalling a change in the price trend.

Here are some examples of the most powerful candlestick patterns every trader should know. Neutral, bullish and bearish variants of candlestick patterns can be seen:

Candlesticks in Binary Options charts

Candlesticks in binary options charts offer a simple and effective trading strategy. Having knowledge of simple candlestick formations will allow even first-time traders to identify short-term opportunities in the markets.

How to trade Candlesticks with Binary Options?

Understanding the prediction of the next candle is important for trading binary options efficiently. Trading binary options requires strategic decisions due to its high risk, and the use of trading tools like support and resistance levels, chart patterns and indicators can simplify market analysis.

Factors like time frame, market conditions and visual indicators help predict bullish, bearish or trend continuation movements. Identifying patterns such as Bullish Engulfing, Shooting Star and Hammer in a bull market or Bearish Engulfing, Hanging Man and Inverted Hammer in a bear market will increase the accuracy of the prediction.

Top 3 Candlestick Patterns for Binary Options Trading

  1. Doji: Indicates indecision among buyers and sellers.
  2. Hanging Man: Signals a possible market turnaround that could favor the sale of options.
  3. Hammer: Signals the end of a bearish trend during a downtrend.

Candlestick Strategy

Binary options traders can implement three strategies:

  1. Trade Single Candlesticks: Make short-term predictions using high/low options, one-touch options, or boundary options.
  2. Paint a Larger Picture: Collectively analyze the impact of multiple candlesticks to get a broader market perspective. This approach allows for longer expiry times.
  3. Combine Candlesticks with Other Indicators: Enhance timing in trend, swing, or technical indicator trading by integrating candlestick signals.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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