Understand candlestick patterns.The Bearish Gravestone Doji: Dojis appear very rarely in the candlestick patterns. A Doji is created when the opening and closing prices of the day are the same. It is very rare for the opening and closing prices for the day to exactly equal each other. However, the Gravestone Doji is formed when the opening and closing prices of the day are equal to the low of the day, the most bearish of Doji. Learn forex trading and develop your own forex trading system.
These were some single stick patters that were most basic and easy to identify. Not all single stick patterns are straightforward. Some extremely useful single stick patterns rely heavily on their location on a chart.
Making yourself familiar with these candlestick patterns and how to identify and trade based on them is another way that you can add a versatile weapon to your trading arsenal. A variety of single stick patterns can provide some terrific trading opportunities if you can spot them in the right market environment.
We have talked about Dojis. Dojis are often associated with the reversal of the trend and can serve as outstanding reversal indicators. If a Doji appears in an uptrend, it could very well indicate that the trend maybe changing to a downtrend soon especially if it is a Gravestone Doji. Similarly for a downtrend!
The Long Legged Doji: A long legged Doji like the name long legged implies features a small stick with very long wicks on either side. The small candle on a long legged Doji is normally located very close to the center of the candlestick.
A long legged Doji is considered a reversal signal when appearing in an uptrend or a downtrend. This Doji indicates that there was a lot of uncertainty in the market after a period of directional certainty. This change of conviction often results in the change of trend.
The Spinning Top: A spinning top is formed when a candlestick has a small body and wick stick out on both ends. The body should appear to the center of the range of the day’s price action. The wicks should also be as wide as the candle section of the candlestick.
Like Doji, the spinning top is another pattern that depends on the market context and reveals a tight battle between the bulls and the bears. Whenever, there is a close battle between the bulls and the bears, eventually one side have to give in. When this happens, an explosive move in one direction is possible.
The spinning tops make frequent appearances. Dojis appear very rarely. However, like Dojis, the spinning tops are nice indicators that the trend is about to end and reverse itself.
Belt Holds: There are two types of belt holds: bullish and bearish. Bullish belt hold features an open equal to the low and a close near the high which leaves a small wick near the top of the candle.
Belt holds also depend on market context and are excellent trend reversal signals. Bearish belt holds patterns on the other hand opens on their highs and close near their lows, thus leaving a small wick near the bottom of the candle.
Understand candlestick patterns.Hanging Man & the Hammer: The hammer or the hanging man is identified by the small candle that appears at the very top of the pattern! There is usually a pretty long wick at the bottom. If you see this pattern at the bottom of a downtrend, you are looking at a hammer. If it appears at the top of the uptrend, it is considered a hanging man. Learn forex trading and develop your own forex trading system.
If a hammer appears in a downtrend, you wouldn’t trade on it if the opening price on the next trading day is higher than the hammer’s close. Similarly, if you think you have a hanging man appearing in an uptrend, you wouldn’t trade on it unless it is confirmed the next day with an opening price lower than the previous close.
Double stick patterns depend on two days. The first day is called the set up day and the second day is called the signal day. Compared to single stick patterns, double stick patterns are difficult to come by. But these patterns can be very powerful and profitable if you put in the time and effort to monitor them.
Engulfing Pattern: It can be bullish or bearish! The first double stick pattern is the bullish engulfing pattern. The name comes from the fact that the signal day engulfs the pattern day. Both the wick and the body of the second day completely cover the same ground as the first day. The setup day candle should be bearish and the signal day candle should be bullish bigger than the last day bearish candle. Likewise the bearish engulfing pattern signals the end of a uptrend.
Bullish Harami: A Harami is a two day pattern with the candle of the setup day than the candle of the signal day. The first day is very bearish and occurring in a downtrend. However, on the second day bulls take over. This signals reversals of a downtrend that culminated in a downtrend.
Bullish Harami Cross: Bullish Harami Cross is a special variant of the Harami. It involves a Doji pattern and should always be considered an indicator of the potential reversal. Bullish Harami Cross appears during a downtrend. Its setup date is a black long candle. Its signal day is a Doji.
Inverted Hammer: Inverted hammer can be bullish or bearish. A bullish inverted hammer pattern occurs in a downtrend. The first day is a bearish candle. The signal day is an inverted hammer. The bullish inverted hammer is a fairly rare pattern.
Bullish Doji Star: The bullish doji star is very similar to a bullish inverted hammer. It occurs in a downtrend and signals that the bulls have had enough. A bullish doji pattern is a two day pattern with the doji appearing on the signal day during a downtrend.
Bullish Meeting Line: This pattern is another signal that a trend reversal is about to take place. The setup day is a long black candle and the signal day is a long white candle.
Piercing Line: A piercing line can be bullish or bearish! The bullish piercing line consists of a long black candle on the setup day followed by a long white candle on the signal day. The open of the signal day should be lower than the low of the setup day. Likewise, in case of a bearish piercing line a white candle is followed by a black candle.
Undestand candlestick patterns. Based only on the market activity of the previous few days, most candlestick patterns are valid. Using one of these without knowing about the previous trends wouldn’t be very useful. For instance, some of the candlestick patterns indicate a change in trend.Learn forex trading and develop your own forex trading system.
What you should do based on that candlestick pattern depends on the context. Usually the context in which you find the candlestick pattern tells you a great deal about them. Let’s consider simple candlestick patterns first.
The Bullish White Marubozu: The longest white candle is the most bullish of the candlestick patterns. It represents the day when bulls control the market and push prices higher from the opening to the closing. With the long white candle closing near the high, chances are the bulls will be back for more buying the following day.
One common feature of the long white candle is an open near the low of the day and a close near the high of the day. This means that buying has been taking place all the day. With the long white candle, the low price on the candlestick is a good support level.
The Bullish Dragonfly Doji: For a Doji to be created, a day must begin and end with the same price. A Doji is formed when the opening and the closing prices are the same. So essentially there is no stick in the candlestick.
A Doji may not look very exciting to you. But don’t be fooled. Doji patterns are usually associated with a market turn. Doji depicts a day where the battle between the bulls and the bears has been fairly equal.
A Dragonfly Doji is unique in that three of the four candlestick patterns- the open, high and the close are all equal. The price action depicted by the Dragonfly Doji bodes very well for those hoping that prices go higher. The low of the Dragonfly Doji day is considered a near term support level. You can make smart trades based on the Dragonfly Dojis.
The Bearish Long Black Candle: A long black candle means that sellers take over at the beginning of the day and push prices lower and lower until the end of the day. The long black candle is the direct counterpart of the long white candle discussed earlier. The long black candle is as bearish as it gets.
These sellers are selling just to get out of their trades. Price sensitivity is very low for these sellers. Seeing this type of enthusiastic selling must give you the confidence that the bears will be in control for a few more days after the appearance of the long black candle. You can capitalize on this fact. The long black candlestick pattern is a good bearish signal.
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