Tuesday, August 4th, 2015 by Tim Lanoue
Hey everyone! Welcome back! Chances are that if you are reading this then you wisely decided to come back for Part 2 of 6 of our Japanese Candlestick series! Now as many of you know Part 1 was more of an introductory to get us ready for the upcoming series along with break the ice on one of the most overlooked technical aspects regarding binary options investing. Today as you can insinuate by the title of this article we will be covering 4 common Japanese candlestick formations along with what they indicate to online investors.
Now if you are reading this and haven’t already read Part 1 then I would highly recommend doing so and you can do that by clicking Here. (Hyperlink “Here” to Part 1 Article) Now before we go ahead and jump right into Part 2 I would just like to reiterate the importance of Japanese candlesticks and common Japanese candlestick formations. One fact that should be kept in mind and what many people still fail to realize would be that formation of Japanese candlesticks are the foundation to almost every technical analysis based trading strategy. Technical trading strategies that encompass the need for reversals, breakouts, trends along with the break of support and resistance levels are all a result of the formation of particular Japanese Candlesticks.
Now moving forward, the first type of Japanese Candlestick formation we will be covering today is known as an Inverted Hammer. Inverted Hammer candlesticks are a single candlestick formation that occurs when the price of our targeted asset has been decreasing and the likelihood of a reversal is strong. The long upper wick, also known as the shadow, indicates to investors that buyers tried to establish control but unfortunately failed. The formation of this long upper wick along with the closing of this candle also tells us that the sellers weren’t able to push price any lower therefore indicating to us the a bullish reversal will more than likely occur since most of the sellers have already sold. Now two stipulations concerning Inverted Hammer candlesticks would be that they must occur during a bearish trend and the candlestick itself must be bullish, if you see the formation of a candlestick that looks much like an Inverted Hammer but occurs during an upward trend then that formation is mostly likely a Shooting Star.
Shooting Star candlesticks are bearish reversal patterns that have the same appearance of an Inverted Hammer but occur during an uptrend. As you can see in the picture below Shooting Star candlesticks share the same long upper wick indicating to us that the buyers tried to push price higher but the sellers were almost able to establish control and push price down indicating to us that a bearish reversal will more than likely occur. Shooting Stars are a relatively strong Japanese candlestick formation so when spotted make sure to enter a strong PUT trade.
The third type of candlestick formation that we will be covering today is known as a Hammer candlestick. Hammer candlestick formations are strong bullish reversal patterns that form during a bearish trend, otherwise known as a downtrend. As you can see for yourself in the image below, Hammer candlesticks bare the resemblance to that of a hammer and the naming of the formation can also be contributed to the fact that Hammer candlesticks “hammer” out of the bottom of the market.
The last type of candlestick formation we will be covering today is known as the Hanging Man. As you can see in the image below, Hanging Man Japanese candlestick formations share the same resemblance of a Hammer candlestick but the variable that differentiates the two would be that a Hanging Man occurs during a bullish trend while a Hammer only occurs during a bearish trend. Another factor to keep in mind as well would be that Hanging Man candlestick formations oftentimes mark the top of a strong resistance level so for those of you who rely on Price Action Trading Pattern then make sure to be aware of Hanging Man candlestick formations.
Acquiring a better understanding about common Japanese candlestick formations can significantly increase your success as a binary options investor but most importantly widen your knowledge and understanding of technical analysis based trading patterns. Without the formation of Japanese candlesticks there would be no micro aspect to technical analysis which ultimately means there would be zero technical based trading patterns or approaches. If you would like to learn more about Japanese Candlestick formations and what they indicate to online investors make sure to stick around for Part 3! In addition, if you guys have any comments or questions that you would like answered please feel free to leave them below and I will answer each and everyone of them! Lastly, for those of you who found this article educational and helpful please feel free to become part of our Facebook Signals Group. Not only are we the largest binary options Facebook community but we are also the one and only binary options family!