Candlestick Patterns: Bulls Reversals

Candlestick Patterns: Bulls Reversals

Submitted by adil on Mon, 04/07/2014 - 09:11

Candlesticks have a prime position in the technical trading arena. Candlesticks and their patterns are of even greater importance for a binary options trader because binary options traders need to make very short-term decisions for entering positions and dislodging from them. There exist dozens of candlestick patterns that can help a binary options trader in determining short-term bullish trends.

Price not always directly dwells to determine the change in reversal. Sometimes the candlestick patterns show that the opposite party is gaining strength. A hammer is one such candlestick pattern. It shows the traders that bulls are gaining strength. A hammer consists of one single candlestick which has very long bottom shadow. It tells the trader that the asset traded significantly lower than its starting point, however the price rallies on to close nearer the opening point. The bar has a long lower shadow and a small body. Hence, the candlestick forms a hammer shape. The diagram below clearly shows the composition of a hammer.

The binary option trader cannot really use this indicator to enter definitive positions. They can however get decipher that the bulls are gaining strength and that a possible trend reversal is impending.

Bullish Engulfing is one of the many patterns. This pattern forms when a small black or dark colored candlestick is immediately followed by a much larger white or light colored candlestick. Bear in mind that dark or black colored candlestick show a time horizon in which price fell, whereas white or light colored candlestick shows a time horizon in which price rises. As the name suggests, the larger and former candlestick completely engulfs the smaller candlestick which indicates a reversal in price. The chart below shows how a Bullish Engulfing forms.

When this pattern is formed, it suggests that bulls have taken control from the bears on the asset’s price, and that a decline in asset’s price is brought at an end. It shows that time is right for the binary options trader to go long.

Another candlestick pattern with an awkward name is Bullish Abandoned Baby. It is based on three candlesticks and is used by traders of other financial instruments to signal a reversal in existing trend. Here the first candlestick is a large dark colored one and is a part of on-going downtrend. The second candlestick is doji that forms at the opening of the first candlestick. The last candlestick is a large white colored one and forms above the opening of doji. The last bar shows a change in the sentiment of the market towards bulls. Notice the pattern in the chart laid out below.

This candlestick pattern forms rarely and if binary trader knows about it, witnessing one should lead to a good trade because abandoned baby is a reliable pattern. All the trader needs to do is enter a long binary option trade. And if the binary option trader is well versed with MACD and RSI, this signal can be given a solid backing of these additional technical indicators.