Chart patterns are used by traders and financial experts to track (and then predict) how a certain stock is doing and how it might perform in the near future.
The charts also show the alternations in a specific market and help traders to understand how to put their portfolio to better use in order to maximise their profits.
Therefore, understanding patterns for trading and then using that knowledge in binary options trading can be a powerful and efficient tool for South African traders.
In this article, we shall present South African traders explanation concerning candlestick charts which are often used to keep track of underlying price movements.
There are certain patterns which appear within candlestick charts and understanding patterns for trading can make a significant difference in binary options trading.
In fact, in understanding patterns for trading depicted on the charts may help South African traders to predict the possible underlying asset price movement.
It can also indicate if the market for any given underlying asset is either bearish or bullish.
And while it might a difficult task to master this skill, after a while and with proper instruction traders can learn what to look for.
Here, we will present most common candlestick chart patterns since those can be an invaluable help in their binaries trading journey.
Candlestick Chart Patterns – South Africa
There are numerous candlestick chart patterns and each indicates a specific instance in binary options trading.
Understanding patterns for trading, especially if there are so many, is neither necessary nor possible since not all are as common.
Additionally, not all are even useful.
What we shall present to South African traders here are those which are most important and can be most useful when traders are trying to get ahead in binary options trading.
The Doji Pattern
The Doji pattern appears in a situation when the closing and opening underlying asset price are either the same or almost the same.
In this case, a horizontal line will be displayed by the bar. The wick of the candlestick will create either a cross or a plus sign with the bar in question.
Those who recognise this pattern will understand that it points toward the uncertainty on the market.
The Hammer Pattern
In getting better at understanding the patterns of trading means that a price of the underlying asset is on the decline when the hammer pattern appears.
Soon after opening the price of the underlying asset will decrease which points to a strong selling pressure.
However, what South African traders should know about the Hammer pattern is that by the time the trading session is closing the price rises and goes over the opening price. This indicates a buying pressure.
When this situation happens the candlestick chart forms a distinctive hammer figure. The wick becomes downward extended and it resembles a hammer.
This pattern of trading indicates bullish behaviour in binary options traders.
The Morning Star Pattern
The key to understanding patterns for trading is known how long it takes for them to develop. With Morning Star that period is three days.
On the first day, the underlying asset price closes considerably under its opening price which creates a long red bar.
On the second day, the price of the underlying asset closes even lower, under the closing price the underlying asset price on the previous day. This creates a smaller red bar in the candlestick chart.
On the third day, the price of the underlying asset goes up after opening and it closes in above the middle of the bar created the first day. This is depicted by a long green bar this creating a morning star pattern in the chart.
This indicates the reversal of the bearish trend.
The Shooting Star Pattern
This distinctive pattern of trading emerges after a sudden and significant underlying asset price rise.
The price of the underlying asset opens above the closing one of the previous day and it proceeds to climb.
Yet, it also declines intraday and in the end, the closing price is fairly near the opening one.
This forms the pattern similar to the upside-down hammer hence mimicking the shooting star from.
The Engulfing Pattern
This is an interesting pattern which can depict two different trends on the market. In one instance it can indicate the bearish trend while in the other it can point to bullish one.
In both instances, the pattern appearing on the candlestick chart will have a short bar followed by a long one. The long bar will be longer than the short one on both ends.
When the engulfing pattern depicts the bullish trend that indicates that the price decreased the first day while it rose again the next day.
The exact opposite happens with the bearish engulfing pattern.
The Piercing Pattern
As we have already pointed out about understanding patterns for trading, the time of development is also important. For the Piercing pattern that period is two days.
The first day sees the selling pressure pushing the underlying asset closing price way under the opening price.
The second day the price starts climbing upwards and it surpasses the middle of the open-close range of the previous day.
This indicates the bullish trend.
The Harami Pattern
Lastly, in our understanding patterns of the trading article, we shall also touch upon Harami pattern.
This is another pattern which takes longer to develop. It can be either bearish or bullish, it depends on a three-day activity.
If the price of the underlying asset keeps falling over a two-day period only to rise on the third day it points toward a bullish trend.
If the price moves upward over a two-day period only to fall on the third day, it points to a bearish trend.
By understanding patterns for trading South African traders stand a better chance of selecting more profitable trades in their binary options trading process.
The seven candlestick patterns we have described above can be a great springboard.
They can then aid budding South African traders in recognising less common patterns in binary options trading.