Candlestick Trend Reversal Patterns-The Four Dojis
As a trader, you need to master candlestick charting. Candlestick charts have a number of candlestick patterns that can give early warning about the potential trend reversal as well as the trend continuation.
Ask any trader who uses candlesticks in trading, which of all the candlestick patterns is the most important to recognize. He or she will unhesitatingly say a Doji. Appearance of a Doji Candlestick Pattern is often a signal for the beginning of a minor or an intermediate trend.
Appearance of a Doji on the Candlestick Chart can mean a possible trend reversal. So, you should not take this pattern lightly when it appears on the candlestick chart. There are four type of Doji Candlestick Patterns, the Common Doji, The Long Legged Doji, The Dragonfly Doji and the Gravestone Doji.
When the opening price and the closing price during the day are the same, a Doji Candlestick is formed.
When a Doji Pattern appears after a long uptrend, it means a potential top.
Similarly, if this was a long downtrend, it means that the bears were no longer able to prevail on the bulls and soon they might as well start losing the battle.
Common Doji is usually taken as an indecision pattern. However, a Long Legged Doji Pattern means that the prices had tried to move higher but could not sustain them in the market. So they had to come down and close at the opening price in the middle of the candle.
If a Long Legged Doji is formed outside the Upper Bollinger Band and is confirmed by a sell signal on the Stochastics or any other indicator, it means a potential trend reversal.
On the other hand, a Gravestone Doji also indicates that the prices had gone higher during the trading session but the buying momentum could not be sustained. Prices closed at the open which was also the low of the trading session. A Dragonfly Doji is the exact opposite. There was heavy selling during the day but later on the buyers jumped in and drove the prices back to the high which was also the open of the day.
Now, you need to assess the appearance of a Doji by carefully noting when the Doji occurred on the candlestick chart. Appearance of a Doji in the early stages of a trend may mean nothing. Similarly, if you find the Doji appearing in the middle of a Bollinger Band, it may mean a pause rather a reversal of a trend.
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Article Tags:
candlestick charts
,candlestick charting
,candlestick patterns
,doji candlestick pattern
,long legged doji
,dragonfly doji
,gravestone doji
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