Candlestick Trend Reversal Patterns-The Four Dojis

Adding candlesticks to your trading can be a powerful addition to your trading arsenal. There are a number of highly profitable candlestick patterns that can give you an early warning on the impending trend reversal or trend continuation.

Some candlestick patterns are simple while others are complex. In this article, we will talk about one of the most important candlestick pattern known as a Doji. Doji is a simple candlestick pattern that can give early warning about the potential trend reversal.

There are four types of Dojis, The Common, the Gravestone, The Long Legged and the Dragonfly Doji.

The common thing between these four Dojis is the fact that the opening and the closing prices were the same. In other words, the prices closed at the same level at which they had opened.

When a Doji Pattern appears after a long uptrend, it means a potential top.

Similarly when a Doji appears after a long downtrend, it means a potential bottom.

A Common Doji Pattern represents indecision in the market. A Long Legged Doji is a far more dramatic pattern. It means that the prices had moved higher in the day then selling kicked in leaving a long upper shadow on the candle. A close before the midpoint of the candle indicates a lot of weakness.

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 it 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.

Mr. Ahmad Hassam has done Masters from Harvard University. Get these 3 Swing Trading Systems FREE. Master these highly profitable Candlestick Patterns with this FREE 82 page PDF Candlestick Guide.

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