Candlestick Analysis, Hammers, Shooting Stars

Candlestick analysis is a type of analysis based on bar charts that use candlesticks. If you’re new to candlestick analysis, take a few moments to read Candlestick Analysis Tip, from out Tip section.

Candlesticks are short term guides for measuring daily rates of assets. As the price of assets rise and fall continuously throughout the day, candlesticks mark the areas on the chart that show the lowest price the asset reached, and the highest price, along with the price action. Candlestick stick analysis can tell a trader many things regarding an asset. When candlestick analysis is combined with Support, and Resistance analysis, it can become very useful in binary options trading.

In this lesson, we’re going to show you a strategy, that uses candlestick analysis to predict if the price of an asset will rise or fall. Its important to know is how to read candlestick style charts, and how to identify Support, and Resistance to apply our strategy. Using simple examples below, we will try to cover Support, and Resistance in this lesson. If you don’t have a candlestick analysis chart to look at, you can download a MT4 chart from forex.com by opening up a demo account

Support is a term used to say that the market supports the current price of an asset. Support can be measured in short term periods as well as long term periods. In this example, we will cover how to identify long term support which applies more to our strategy, and has proven to be useful in binary options trading.

This is an example of support:

What this chart tells us is that both the buyers and sellers support the current price of the asset in the series of days we see displayed. The circled area on the chart shows the price didn’t drop below the price point before the initial surge.

Looking at the data over a longer period of time can give a trader a better grasp on how strong the support for the current price is.

Resistance is term used to describe that the market is putting pressure on the current price gradually decreasing it over a period of time.

Below is an example of resistance:

As we can see on the chart, that even after the upwards surge indicated by the circle, the sellers in the market over power the buyers and continue to cause resistance leading to the price lowering.

We always want to keep an eye on the support and the resistance because it tells us what kind of trend an asset is experiencing at the time.

Strategy

Using the different types of candlesticks on charts, we’re going to show you a strategy that can help you determine where the price of the asset will go.

When the bar on the chart has a rectangular head with long tail below it, it is called a Hammer.

When you see a Hammer on the chart, it’s a very strong indicator that the price of the asset is going to go up. We know this because, what the long tail of the hammer tells us. The end of the long tail shows us the lowest price the asset reached in the day. We know the activity from the sellers in the market pushed the price of the asset to that low indicated by the tail. But then the buyers entered the market, rallying the price into positive ground, even with all of the pressure from the sellers. The chances are more than likely that the asset will close higher for the day.

When the bar on the chart has a rectangular head with long tail above it, it is called a Shoot Star.

When you see a Shooting Star on the chart, it’s a very strong indicator that the price of the asset is going to go down. The tail on the Shooting Star tells us that buyers in the market rallied the price to the high for the day, but the sellers entered the market pushing the price back down and into negative territory. It tells us that sellers are stronger than buyers in the market, and the chances of the asset closing at a lower price than its opening, is more than likely.

Use this strategy wisely to sharpen your understanding of market activity, and your rewards for successful trades will follow. Stay tuned for more strategies ahead.