8 Common CandleStick Charts - How to Monetize When You See Them
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Common Candlestick Patterns

If you want to trade binary options successfully, one thing you will have to do is find a trading method which can help you achieve results.  If you have been searching for a strategy which is simple and straightforward and which can work for you over the long term, consider candlestick patterns.  In this candlestick patterns tutorial, I will tell you exactly what binary options candlesticks are and how you can use them to trade profitably.

What Are Candlestick Patterns?

First of all, if you are not familiar with candlesticks, read How to Use Candlesticks in Binary Options Trading.  Candlesticks are simply a format for displaying price on your binary options charts (other formatting options include line charts and bar charts).

Candlesticks make it easy to visualize what price is doing.  You can color the bullish candlesticks green, and the bearish ones red.  The shape of each candlestick allows you to see the open, high, low, and close of price for that period.

Again, if you are not familiar with the anatomy of candlesticks and the basics of reading them, you should start with the article linked above.

If you are all caught up, let’s talk about candlestick patterns.  Basically, when price is consolidating and about to break out or reverse, and in some cases, when it is going to continue along its current path, certain patterns are common.  If you can learn to identify these patterns as they are forming, you can get an understanding of what is going on with price right now—which helps you to figure out what it is likely to do in the future.

“With candlestick trading, you are letting price itself speak to you.  This makes it an incredibly powerful method for identifying trade setups.”

Note that you can use bars for candlestick trading as well.  Both work equally well.  You can play with both formats and figure out what visually is easier for you.

One more thing which is useful to know is that trading with candlestick patterns is sometimes referred to as “price action,” usually in Forex circles.  It is the exact same thing.  So if you are looking for additional resources, you might try looking up “price action” as well—especially since some of the best info out there has been circulated under this name.

How Candlestick Patterns Work

A basic CandleStick Chart – FreeStockCharts.com

With candlestick trading, the steps are pretty simple:

  1. Open your charts and set them to display as either candlesticks or bars. It is up to you which you prefer.
  2. Add some moving averages if you want (more on this in a bit).
  3. Keep an eye on price and start looking for meaningful patterns.
  4. If you spot such a pattern, look for confluence and check to make sure the context makes sense.
  5. If you do determine you have an excellent setup, then go ahead and trade accordingly. Just make sure that that the entry and expiry times make sense.
  6. During a trade, be on the lookout for new information. Sometimes you will see an opposing price pattern form. If you do, it may indicate that it is time to get out with a partial profit.

Pros of Candlestick Patterns Trading

There are quite a few reasons why I love candlestick patterns, and why I think you will too:

Cons of Candlestick Patterns Trading

With the first potential drawback I have mentioned, the only real solution is patience.  Develop it if you can.  If you cannot, another trading strategy may work better for you.

For the second issue, I suggest you do not look for confirmation across multiple timeframes.  Instead, focus on one timeframe, and then check for confluence on the same chart.  I will explain more about confluence in a little bit.

Examples of Candlestick Patterns You Can Use In Your Trading

By now, you are probably wondering what kinds of candlestick patterns you can look for and how they can help you make a profit.  Here are some examples!

There are other candlestick patterns, too.  If you research, you can discover them.  You do not need to learn a ton of different types of patterns to trade successfully however.  Becoming really good at just a couple can be enough to make you rich.

Context and Confluence

Now I want to tell you the #1 reason why a lot of traders struggle with price patterns.  This is an issue which hits most traders sooner or later, even if in the beginning they seem to pick up on price action quickly.

Basically, you can be an expert at spotting perfectly formed candlesticks, and still end up losing money.  The reason is generally that you are oblivious to the context of your trades.

This has to do with a broader understanding of what is going on with the market.  A price pattern gives you one indication that price is consolidating, breaking out, reversing, or continuing, but on its own, that data is not always meaningful.

“A beautiful pinbar in the wrong spot may not be telling you anything—like in the middle of a strong trend, rather than at a swing high or swing low.  So location is very important.”

Of course, this leaves the problem of identifying when you are at a swing high or swing low.  For that, I recommend looking to other indicators to provide confluence.  “Confluence” simply refers to confirmation from other sources.

You can use anything you want, but a few common choices among price action traders include:

Resist the urge to add too much to your charts.  Keep them simple and clean.  1-3 indicators is all you need.

Action Tips for Success

You now should have a strong understanding of what candlestick patterns are and how you can learn to trade them.  So to close this candlestick patterns tutorial, here are some useful action tips:

Conclusion: Candlestick Patterns are a Powerful, Elegant Method for Identifying Trade Setups

If you value simplicity, clutter-free charts, and a powerful, direct method for trading, it is hard to beat candlestick patterns.  It takes patience to wait for the best trades to come to you, but it is worth it.  If you become an expert at candlestick trading, you will have a profitable strategy on your side which can serve you across many different markets.

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