Binary Option Signals


In order to trade binary options profitably you’re going to need to brush up on your technical analysis. Don’t go thinking you can beat the market; every trade you make should have sound reasoning behind it.

Here we’re going to look at some of the most popular trending signals for trading binary options. All these signals are from the candlestick chart, so make sure you set your charting software to show candlesticks.

The time-frame will depend on the length of options you want to trade. We’ll go into more detail when we put these signals together in a strategy in the next article, but for now we’ll set the chart to 1 hour intervals.

Bear in mind that none of these signals should be taken in isolation but the appearance of one or two of them coupled with breakouts from lines of resistance should give you a pretty strong signal to trade.

Engulfing

The engulfing signal has proved to be a very accurate trend reversal signal since the beginning of time.

It’s characterized by two opposite colored bodies; the bottom of the current body will be lower than the previous bodies low and higher than the previous bodies high. Thus completely engulfing the previous body (hence the name), ignore the tails and shadows.

The appearance of this candle signifies a reversal of the trend in either a downward or upward fashion. So you should be looking to either enter or exit a trade depending on your current position.


Hanging Man/Hammer

The hanging man is a bearish signal that appears at the end of an upward trend. It’s characterized by a short body with a long tail. The hammer is the same signal but appearing at the end of a downward trend and has a short body and a long shadow.

This is a very reliable signal but it shouldn’t be taken in isolation. It typically appears only within intraday charts so it’s a popular signal for day traders but binary options traders can also use it to determine the top of a trend and the start of a reversal.

If you’re going to trade this signal it’s best to wait until the price passes beyond the lowest low or highest high as it’s prone to give false breakouts especially in the lower time frames.

 

Morning Star/Evening Star

The morning star signal is found at the bottom of a downward trend and the evening star is found at the top of an upward trend. This is a very powerful signal for spotting trend reversals and therefore useful to binary traders.

It always consists of three candles the first candlestick consists of a long black body, the second candlestick gaps down from the first (the body’s display a gap, but the tails and shadows may still overlap). The final candlestick has a long white body which closes in the top half of the body of the first candlestick.

This set-up can be made considerably more powerful if combined with another candle formation like a shooting star. Such a set-up is golden and is sure to result in a trend change.

 

Shooting Star/Inverted Hammer

The shooting star is one of the most easily recognized signals, consisting of one candle with a small body and a shadow at least two times the length of the body. It appears at the top of an upward trend.

Its counter part the inverted hammer appears at the bottom of a downward trend. Its appearance is the same but in reverse; it has a short body with a long tail.

The appearance of either signal is a strong indication of a change of direction. The shooting star is one of the most popular signals partly because its so easily recognized but also because its incredibly accurate.

 

Abandoned Baby

The abandoned baby signal is a rare occurrence but has proved to be very accurate over the years so it would be foolish to ignore it. It consists of a three candle formation and appears at the top of an uptrend (abandoned baby bearish) or the bottom of a downward trend (abandoned baby bullish).

The first candle will show a strong body in the direction of the current trend; this will be followed by a small candle or doji which will appear at the top or bottom of the previous candle, depending on the current trend. The final candle will show a strong body in the opposite direction of the trend.

When combined with lines of resistance this is a very powerful indicator which should be added to the arsenal of every binary options trader.

In the next post we’ll be looking at combining a few of these signals into a working strategy. But for the mean time fire up your charting program and start looking for these formations. Professional traders will know these formations off by heart, and with time so will you.



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