Beginning traders have a tendency to anchor their trades on one indicator or type of information. But making a
trading decision is multi-dimensional. Ask yourself what pattern the underlying market is in. Is the underlying market trending up, down, or sideways? Is the price experiencing an increasing momentum?Is volatility low or high? Is it testing support or resistance?
These and other questions come quickly to the mind of the trader who needs to effectively prepare for trading binary options. They become, in effect, a checklist of technical conditions that need to be reviewed. Let’s look at candlesticks, trend lines, and support and resistance lines. These three categories create a solid foundation for trading, and apply very effectively to binary option trading decisions.
Key Candlestick Patterns:If you are new to trading, you need to become familiar with candlesticks.They originated with the Japanese when they were trading rice hundreds of years ago. Today candlestick patterns are the most popular way to represent price activity. Let’s start with understanding the basic structure of candles (Figure 5.1).Each candle has four parts. There is the body, which has a top and bottom representing the open and close prices. These four components are, in effect, the DNA of price action. Any emotion in the market is ultimately represented in the candlestick pattern.
A candle can represent price activity for almost any desired time frame.There can be one-minute, five-minute, one-hour, one-day, one-week, and one-month candles. One of the most important and basic features of the candlestick is its color.It is conventional to have a white candle representing a bullish activity and a black candle representing a bearish activity. Many charts allow traders to use their own colors to represent being bullish or bearish.
Let’s look at what being bullish or bearish really mean in the context of what the candlestick is doing.A bullish candle is one in which the close price is above the opening price. A bearish candle is one in which the close price is below the opening.Basically, the direction is either north or south! There are times when the open and close are the same or nearly the same. The candles are then neither bullish nor bearish. This represents indecision or hesitation. Candles are allabout expressing the emotion in the market.