The Doji Patterns
The Various Doji Candlestick Patterns
The Doji is a single candlestick pattern that indicates weakness and a potential trend reversal. This can be either a bullish or a bearish trend reversal, depending on where the doji appears on the price chart. A doji is usually a relatively short candlestick with no real body, or very little real body. It indicates that the opening and closing prices for the period were at the exact same level or very close together. In terms of market psychology, a doji indicates that there is indecision and uncertainty in the market with neither buyers nor sellers able, or willing, to move the price to significant levels, which would indicate a weakness in the current trend and a possible reversal. To have any significance, a doji must appear in an existing trend at a trend line or a support and resistance line, or when the market is oversold or overbought. However, the doji is less significant if there are already a number of doji in the current trend.
The doji has different names depending on the location of its real body, or rather, the lengths of the upper and lower shadows.
- A doji with long upper and lower shadows is called a Rickshaw Man or a Long-Legged Doji. The long shadows indicate that the market rallied and sold off significantly during the session but that neither position was held as the market closed where it had opened. This is an indication of great uncertainty and lack of direction.
- A doji with a long lower shadow and no upper shadow is called a Dragonfly Doji. It has greater significance in a downtrend as it has bullish implications and indicates that the sellers were able to drive the price lower during the session, but were unable to hold the price down. Therefore, it is usually an early indication that a downtrend is running out of steam and may soon come to an end.
- A doji with a long upper shadow and no lower shadow is called a Gravestone Doji as it has the shape of a gravestone. The gravestone doji is the opposite of the dragonfly doji and has greater significance in an uptrend as it indicates that the buyers were able to push the price up during the session, but were unable to hold the market at the higher levels, conceding ground to the sellers. It usually indicates that the uptrend is running out of steam.
One or more doji can also form part of other candlestick patterns, such as in a Morning Star, which would then be called a Morning Doji Star or an Evening Star, which would then be called a Evening Doji Star, or a Harami pattern, in which case it is called a Harami Cross.
The Evening Doji Star
Star patterns are trend reversal patterns that consist of three candlesticks, with the middle candles stick forming the star. A star is a candlestick with a short real body, like a doji or a spinning top, that gaps away from the real body of the preceding candlestick. There are three basic star patterns: the morning star, which appears in a downtrend; and the evening star and the shooting star, which appear in an uptrend.
The morning star and the evening star have a doji or a spinning top as the second candle...
Three Black Crows
The Three Black Crows pattern is the bearish counterpart of the Three Advancing White Soldiers pattern. It is a reversal pattern that consists of three bearish candlesticks that should come into consideration when it appears within an established uptrend, where it indicates a weakness in the uptrend and, potentially, the beginning of a down trend.
Each of the three candlesticks in the Three Black Crows pattern should be relatively long bearish candlesticks with little or no lower shadows. Each of the candlesticks in this pattern should mark a steady decline in ...
The Hanging Man and Hammer candlestick patterns are related trend reversal patterns that may appear at the end of an uptend or downtrend respectively. This is a single candlestick pattern that with a short real body, little or no upper shadow and a long lower shadow that must be at least twice as long as length of the real body. The color of the candle is not import, only its location in the current trend.
The Hammer pattern is called a takuri in Japanese, which means testing the water for its depth. This is the bullish version of the pattern. A bearish ...
The dark-cloud cover pattern is the opposite of the piercing pattern and appears at the end of an uptrend. It is a dual candlestick pattern with the first candlestick being light in color and having a large real body. The second candlestick must be dark in color, must open higher than the high of the first candlestick and must close down, well into the real body of the first candlestick. The deeper the second candlestick penetrates the first, the more reliable the pattern becomes.
The dark-cloud cover pattern is also more reliable when it appear at or near a resistance line ...
When the close price and the high price are the same or very close, the candlestick will have no or little real body. These candlesticks are called Doji, which means unskillfully. Doji candlesticks have no color and are neither bullish nor bearish. They tend to indicate momentary indecision and uncertainty in the market and may be a prelude to a trend reversal but it requires confirmation from subsequent candlesticks as Doji that appear in multiple candlestick patterns tend to be clearer indications of trend reversals.
There are different types of Doji candlesticks, depending on the position of the cross bar indicating the open and close prices. When the cross bar is more or less central with an equal length shadow on either side, it's called a Rickshaw Man Doji. When the cross bar is at the bottom of the shadow, i.e., there is no lower shadow, it's called a Gravestone Doji. When the cross bar is at the top of the shadow and there is no upper shadow, it's called a Dragonfly Doji, though some call it an Inverted Gravestone.
Continuation patterns indicate that there is a greater probability of the continuation of a trend than a trend reversal.. These patterns are generally formed when the price action enters a consolidation phase during a pre-existing trend. During the consolidation phase, the trend appears to change; however, the continuation of the preceding trend is more probable.
Some of the common continuation patterns include the cup and handle pattern, flags and pennants, symmetrical triangles, ascending triangle and desc...
Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.
The common reversal patterns include the double tops and double bottoms, triple tops and triple bottoms, broadening tops and broadening bottoms, ...