In Lesson 3 we are going to learn about Candlestick charts in details and find out the different form of Candlesticks that are in use. We will also learn how these different variations of Candlesticks can be used in binary options trading for more accurate predictions of the price behavior of an underlying asset in near future.
Candlestick Charts Quick Recap
If you do not remember what we learned about Candlestick charts in Lesson One of this advanced course, there is no need to fall back to that chapter because we will give you a quick overview of this variation of charting tool for quick reference.
A quick overview of the Candlestick:
- These are the most powerful forms of charts available in market.
- They use all four price variants – Open, High, Low and Close (abbreviated as OHLC).
- They are always color coded, which makes it easier to remember them.
- A Candlestick will have a central rectangular block with two thin line protruding out from the top and below the central rectangular box.
- The central rectangular block can be Hollow or Filled. The central block is called the real body.
- The thin lines protruding out on either side are called shadows. The one that protrudes up is called Upper Shadow and the one that protrudes down is called Lower Shadow. The Upper Shadow is known as the Wick of the Candle, the Lower Shadow is called the Tail of the Candle.
- For the Hollow block, the bottom of the block represents the opening price of the asset. The top of the block represents the closing price of the asset. Some may use a completely Filled green box to represent this.
- For the Filled block, the bottom of the block represents the closing price of the asset and the top of the block represents the opening price of the asset. Some may use a completely Filled red box to represent this.
- The top point of the Wick or the Upper Shadow will always represent the High price and the bottom point of the Tail or the Lower Shadow will always represent the Low price irrespective of the Real Body (Hollow or Filled block).
- The Hollow block represents Bull market (closing price > opening price means prices are rising and hence, Bull market).
- The Filled block represents Bear market (closing price < opening price means prices are falling and hence, Bear market).
Now that we know what a typical Candlestick looks like and what it represents, it is time we move into different variants of Candlesticks that are popularly used.