After a substantial introduction to Japanese candles, we saw how to build and read it, now we will try to take advantage of Candlestick analysis to predict the performance of a binary option.
A Japanese candle can be black or white and can take many forms. Each of them represents a market in its particular time, and obviously reflects the temper of the investors (buyers and sellers).
The human being is particularly complex, but generally in the same situations tend to react in the same way.
All this allows us to use the Candlestick analysis, or analysis of the candles, as statistically reliable system for predicting the movements of the market, and consequently for profit.
The method of the candles is basically adopted by all traders as one of the most effective and reliable, although not without risks and errors. Of course, rather than analyzing individual figures driven out of the context, it seems appropriate to rely on combinations and sequences of candles (patterns) that allow you to predict more accurately the trend of a stock.
The analysis of the Japanese candlesticks consists of two groups of patterns :
1 . Continuation pattern
2 . Pattern Reversal
The reverse patterns are divided between bullish and bearish, depending if they provide the inversion of an upward trend or a downward trend.
As is easily understood, if the pattern continued trying to predict whether the current trend can continue, the reverse pattern, on the contrary, analyzes any interruption of the trend with the possibility of reversal in the opposite direction.
There are hundreds of candlesticks that provide information of continuation of inversion, but as far as we are concerned we will only deal with the most important figures, or those that have very strong signals and particularly reliable.
The Doji line
The candle is a doji line with the opening price and closing price of identical or very similar . This means that it does not have a shape, that is a real shape and looks like a rod shape with a millimetric or absent. Even if the shape is small, it's still present, in this case we speak about : Spinning Top
Below examples of Doji
The Doji line expresses an indecisive market, where neither buyers nor sellers were able to prevail over the other operator.
When there is a continuation of other doji candles or similar means a stalemate, an isolated form may indicate a signal of a trend reversal.
If it follows a long candle, it can be noted that the previous trend of the market has stopped.
Generally, the real shape is very small, as in the case of Doji or spinning top, and indicate indecision. The more the shape is extended, the more it means that the market is moving.
The Marubozu line, both the white and the black one, it's a long candle with the absence of shadows, that both upper lower, the bars that are above and below the shape of the candle
The Marubozu are presented graphically as rectangles, blacks or whites, and this means that the prices of opening and closing titles are exactly the minimum and maximum prices achieved. The Marubozu are not often strong and indicate trend reversals. They are in fact a clear signal that something has changed.
So if you find a black Marubozu after an uptrend , this is the signal that the trend has reversed and the option will begin to decline. The second black candle after Marubozu strengthens the signal.
If you find a white Marubozu following a downward trend, the candle signals a bullish reversal. Also in this case the second candle of the same color after the Marubozu strengthens the prediction.
Below is an example of inversion with black Marubozu ( Some programs use the red color that reminds better downturns , and the color green for growth )
Hammer and Hanging Man
These are two very popular figures, among other things provide good signals individually outside of the pattern.
Their name, are used because the hammer reminiscent of a hammer, while the Hanging Man hanged man, perhaps with too much imagination.
It is two candles whose color is not particularly important, in fact , what counts is the lack of a shadow, the lower for the Hammer, and the upper one for the Hanging man.
At the end of a downtrend white candle predicts a reversal to a positive trend, while a positive trend at the end of the black candle Precide reversal to a downtrend.
It's very easy to see it , the two candles are characterized by a relatively low real shape, and for the single shadow pronounced, at least twice the height of the body.
If the session ends with one of the two candles, and the next session opens with a gap of price, this is the signal that confirms the trend reversal.
They come with a very long upper shadow either black or white, if it follows a trend of increase is a sign of decline in the market, then turnaround. And conceivable point downward.
Very similar to the Shooting Star indicates the minimum point of a trend. The next candle will probably show an increase . If two white candles follow an Inverted Hammer is a sign that the market has returned to growth.
Opening Bozu and Closing Bozu
Are candles that level signals resemble the Marubozu but with less power. The opening bozu lack upper shadow, while the closing bozu lack lower shadow.
Lower and Upper Shadows
If the length of the real body is pronounced, both for white candles for the black ones, this is a strong sign of a reversal of the trend. If the real body is short, as the doji indicates indecision, market prices congested and they can be considered non-directional.
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