Binary Options Chart Reading

Trading in the binary options market whether it is done by binary options robot or automated trading software it requires a meticulous planning and discipline but above all, it requires a knowledge of the financial markets. Binary Option Robot can help you a lot and by choosing a proper binary options broker such as IQ Option for example you will help your self a giant leap but at the end of the day traders must have analytical skills to analyze the fundamental indicators and technical indicators in order to increase their winning rate. On top of that of course binary option signals may lead traders to right direction towards good trades. 

In today’s article, we will focus more on the technical aspects of the binary trading. The article focuses on various charting patterns, their usage, and evaluation.

Why Binary Options Charts?

Charts are basically the drawings which plot the price movement of an asset. They being the graphical representation of the price action, they are easier to understand and evaluate compared to the raw data. Several charting software are available on the internet and also most of the binary broker provides state of the art charting tool to aid the users. The charts can be categorized into several types: break-out charts, candlesticks, patterns, etc. The binary broker also offers analytical tools along with the charting including indicators like RSI, MACD, Trend, Stochastics, and much more.

The chart offerings from the binary broker enable the traders to check the historical price movement and the real-time price movements. Traders also have an option to plot various indicators with whom they are comfortable in order to make the trading decision.

Seasoned traders are able to identify trends, trend changes, and a possible reversal in real-time. New traders can also learn the technical analysis and use it to their advantage while placing the trade. Once you have gained enough knowledge, you can apply it in real-time to make profitable bets. 

Basically, charts provide insights in the price action of an asset and the technical analysis correlates it with some patterns to make the decision.

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Candlesticks are the most commonly used binary option chart technique in the binary trading arena. The candlesticks have four parts to and each signifies important information, so please remember the following concepts.

The below picture shows the basic candlesticks and how each of the parts has a meaning attached to it along with the color. The four components as shown in the picture makes the DNA of the candlesticks. It indicates the opening price, closing price, high price and low price of an asset for a given time period. The candlesticks can be platting for any time frame including a second to hours, and days to years.

Binary Options Chart Reading

The most basic feature of a candlestick is its color. Most commonly used color schemes are black & white, and green & red. Generally, the white and the green candle represents the bullishness whereas the black and the red candles are plotted to indicate the bearishness in the underlying.  The major difference between these two candles (green or red) is that their opening and closing prices are plotted differently. The Opening price is at the lower body of the candle in case of the green candle whereas, the opening price is at the upper end of the body in the case of the red candles. In simple words, the green candle signifies that the opening price was lower than the closing price of an asset for a given time-period whereas, the red candle signifies that the opening price was higher compared to the closing price of an asset for a given time-period.

Candlestick patterns

Once you understand how the candlesticks are plotted and what does they signifies, you must know various patterns which emerge in the candlesticks and are used as an indicator for making decisions. The most important candlestick patterns are hammer, doji, spinning tops, and engulfing. Let’s understand them one by one:

Hammer: Hammer pattern has got its name because the candlestick looks like the hammer. It has a long wick and a solid body, sometimes, the wick is twice the size of the body. The hammer pattern indicates that the time is for the reversal, meaning if the asset has been rising and a hammer pattern appear that means that there is a higher probability that the prices will start moving downwards. The following figure shows how hammer looks like in  candlestick charts.

Binary Options Chart Reading 2

Doji: Doji represents that the market is in indecisive and there is a hesitation to move the prices in the continued direction. A doji pattern does not have a real body (the filled part as shown in the candlesticks figure) because the opening and closing price are the same or nearly same. Within Doji, there are four types of patterns: long-legged doji, dragonfly doji, Gravestone doji, and four-price doji. The following table explains these four types in the simplest form:

Binary Options Chart Reading 3

Spinning Tops: They also indicate the market incisiveness’. They have relatively lower bodies and has a wick on both sides. 

Engulfing: The engulfing pattern provides a good indication of a market mood change. It is pattern wherein a small candle is followed by a big candle of opposite color. There are two types of engulfing: bearish engulfing and the bullish engulfing. In the bearish engulfing, a small green candle is followed by a bigger red candle, whereas, in the bullish engulfing, a small red body candle is followed by a bigger green candle.

Relative Strength Index (RSI):

It is a widely used indicator in the binary arena along with the candlestick charts. Welles Wilder, a famous analyst, has developed this indicator which signifies the momentum of an asset. This indicator evaluates a number of recent gains & losses over a specified time to gauge the pace and changes in the price. It is mainly used to identify the overbought or the oversold state of an asset.

The Relative Strength Index (RSI) is plotted between 0 to 100. The default time period for evaluating the RSI is 14, but you can change that according to your preferences. The most common interpretation of an RSI is that – if the RSI value is above 70 then it signifies that the asset is in an overbought condition, and if the RSI value is below 30 then it signifies that the asset is in oversold condition. Both the state indicates a direction change is on the card and it may occur anytime.

Moving Averages Convergence Divergence (MACD)

Moving Averages Convergence Divergence or commonly known as MACD is a trend-following momentum indicator. It basically indicates the relationships between two moving average of the asset price. MACD is plotted by subtracting the 26-time period exponential moving average from the 12-time period exponential moving average. A 9-time period exponential moving average is plotted on top of the MACD, known as the “Signal Line”, which acts as a buy or sell signal.

When the MACD falls below the signal line, that it is considered as the bearish signal whereas if it moves above the signal line, that is considered as the bullish signal. Traders should wait for a confirmation before entering the trade based on an MACD line as sometimes it gives fake signals and it may cost you. When the prices of an asset diverge from the MACD then it is considered as the end of the current directional move.

Traders also watch for a “zero-line” cross over as it shows the position of short-term averages relative to the long-term averages. The crossover of MACD above zero line indicates positive momentum and the opposite crossover indicates the bearish momentum.


This is again a momentum indicator which compares the closing price of an underlying to the range of its prices over a pre-defined period of time. The sensitivity of the oscillator can be managed by adjusting the time period. The indicator has two lines namely %K and %D. The stochastics is based on the assumption that in an upward trending market, prices of an underlying tend to close near the highs, whereas, in a downward trending market, prices of an underlying tend to close near the lows. The trading signals are generated when the %K line crosses the %D line.


The article focuses on the technical aspects of the binary trading and charting. The above-mentioned text provides the basic information about various charting options and charting indicators. The article details about the candlesticks and various patterns which can be utilized for your advantages. The above text also discusses the various technical indicators like RSI, MACD, and Stochastics and how they can be utilized for your benefits and making a right decision.

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Author: Michael Allen

Michael Allen is the main author at He holds a PhD in Economics and has worked in investment banking for 24 years.


Michael Allen

Michael Allen is the main author at He holds a PhD in Economics and has worked in investment banking for 24 years.


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