Guide to Trading Using Price Action and Candlesticks on IQ Option

Over the past couple of months, I've received emails from traders wanting to know just how to trade based on price action. Other traders wanted to know how they can trade based on candlesticks only.

Both questions intrigued me. Essentially, both methods won't require the use of indicators. You simply need to study the charts and observe how the price is moving. So I decided to write a short price action trading course detailing how you can trade using both methods.

Trading using candlesticks on the IQ Option platform

Trading using candlesticks is quite simple. The only thing to remember is the candle color. If it's green, it means that the bulls are dominating the markets and it's a signal to enter a buy position. If the candle is orange, the bears are dominating the market and it's a signal to enter into a sell position.

However, the major problem lies in where exactly to enter into a position. I recommend you wait until one candle ends and another starts. Never enter a trade when a candle is developed halfway. In addition, your goal is to look for solid candles (not special candles). The reason for this is that special candles with long wicks develop in times when there's extremely high volatility. The price going against you by the time your trade expires is very likely at these times.

Let's look at an example.

If you're trading on the IQ Option platform, you can trade either binary options or digital options. In my examples, I'll use digital options.

comparison of expiration times
Set your chart to have 5 minute interval candles. That is, each candle will last 5 minutes before the next one starts developing.

waiting for 5 min trade

Now, wait until a candle completely develops. I prefer waiting for a candle to start developing at a minute that's divisible by 5. For example, I waited until the time was 9.55am before entering my position. Then I set the trade expiry at 10.00am.

Judging by the candle that had developed prior to the 9.55am point (orange), I predicted that the price was going to drop. So I entered a sell position lasting 5 minutes.

digital option 5 min trade opened

digital option 5 minute result

When trading using candlesticks, you don't have to worry about price. All you need to look at is the candle color. However, you'll also need to take into account the previous two or more candles. This strategy works quite well when there's an apparent trend. For example, if there are long consecutive orange candles, you can expect that more orange candles will develop along the downtrend.

Candlestick formations help in candlestick chart analysis

When talking about Japanese candles, it is important to mention candlestick formations. These are repetitive patterns of one or more candles, after the occurrence of which the trend will continue or be reversed. It all depends on the type of pattern. On our site you will find a wealth of information on how to interpret these formations. We recommend that you read the list of articles below:

Trading using price action on IQ Option

Price action trading involves looking at the direction the price is taking at a particular moment. Your goal is to determine whether the price will be higher or lower by the time your trade position expires.

In this example, I'm still trading digital options IQ Option.

The first thing to do is look at the price chart. In the example below, you'll notice that I created a resistance level (blue line) which the price bounced off. This created a consolidation range. I expected the price to start rising immediately it broke out of this range. It did and an uptrend developed. As the prices continued rising, I entered a 5-minute buy position because I expected the price to continue going up.

IQ Option's Complete Price Action and Candlestick Trading Tutorial 1

 

IQ Option's Complete Price Action and Candlestick Trading Tutorial 2

Generally, trading price action requires you first identify a specific price range (support or resistance). Then, determine whether the prices will rise or fall below this range when a breakout occurs. Once the breakout happens, all you need to do is enter a buy or sell position.

The interesting thing about trading on IQ Option is that entering a 5-minute trade doesn't necessarily mean that your position will be held for 5 minutes exactly. In my trade, I actually entered position at 14.06pm and the trade expired at 14.10pm.

result of 5m digital entered by price

When trading with price action, you need to act fast. You, therefore, need to continuously analyze price movements over a period of time before trade entry. The good thing is that, once you've identified a good entry point, it becomes really easy to make winning trades. You need a good trading plan that is based on a price action entry and exit strategy. You need to create precise rules for yourself.

Additionally, trading based on a naked chart can be based on different branches of the same field. There are many price action trading books that are seemingly all about the same thing, but each focuses on different elements of price action.

Is price action good for day trading?

Support and resistance levels, classic technical analysis formations, or tools used in price action were originally used on the daily interval and higher. At one time there was no access to intraday charts. The computer age has meant that we have real-time quotes, and trading platforms present us with a price chart on almost every interval, such as 1m, 5m, 30m, 1h, etc.
It turns out that all the techniques related to the analysis of price behaviour translate to these lower intervals. It is, therefore, safe to say that price action can be used in day trading.

How do I practice price action trading?

In trading based on price action, the most important thing is to observe the charts. It is only by looking at the charts of different assets at different intervals for hours that you can gain the experience necessary to analyse market behaviour.
It is a good idea to practice trading on a demo account. IQ Option gives its users the possibility of unlimited training in a virtual account. If you do not have one yet, register a demo account with IQ Option now!

Does price action trading really work?

Of course it works. You can prove it to yourself in a very easy way. Open a chart of any instrument and find the bottom that is closest to the present moment. Draw a horizontal line on the chart at that bottom. Now scroll the chart backwards (to the left) and notice that the price has already reacted with this price level in the past. Ok, this will be the case almost always and not 100% of the time. But it is already a very big deal. Of course, knowing where the market can make a turn and using that knowledge to make a profitable trade are two different things. Price action is not fortune telling, it is a chart analysis methodology around which you can build a profitable strategy.

Never trade with your gut

Trading using both candles and price action requires a specific set of conditions. For example, with candlesticks, you should only trade when an apparent trend appears and candles have large bodies.

This requires patience and proper chart analysis.

Never try to trade with gut feeling. This is simply relying on luck. And in the financial world, luck never makes anyone wealthy.

risky trading

Whichever trading method you choose, remember to always follow the rules. Both might seem very simple at a glance. But if applied incorrectly, you could end up losing tons of money.

Be sure to test the candlesticks and price action trading methods I've explained in your IQ Option practice account. It might take time to grasp each method fully but once you get it, trading will be simpler and more profitable in the long run.

Good luck!

General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose

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Niels Hammer

Trading and investing are lifelong pursuits for me, and I will most likely never stop learning about them. I started trading with IQ Option in 2014 and have been with them ever since. And I've seen the platform mature. Nowadays, I'm very interested in cryptocurrency and am attempting to learn and invest my time and money in it. On the other hand, I try to help you guys as much as I can with this blog. Happy trading!

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