With this article I want to introduce you to basic candlestick chart patterns. We are discussing black and white candles, doji’s, spinning tops and bottoms and, tweezer tops and bottoms.
A white body has a higher closing price than the opening price. The white body has a normal average size compared to recent prices. This is a rising pattern. The black body has a lower closing price than the opening price. The black body has a normal average size compared to recent prices. This is a falling pattern.
A big white candle has a long white body with little or no shadows (wicks) compared to recent prices. This is a stronger rising pattern. If there is no other support nearby, you can use the midpoint of the white body as a support level. A big black candle has a long black body with little or no shadows compared to recent prices. This is a stronger falling pattern. If there is no other resistance nearby, you can use the midpoint of the black body as a resistance level.
A doji has an opening price and closing price very close together with upper and lower shadows. Doji’s are part of many candlestick patterns. A doji with bigger shadows is more important. A doji in an up move with a closing price below the previous closing price is a strong reversal indication.
A doji in an up move with a closing price above the previous closing price needs confirmation for a reversal. With no confirmation the uptrend continues. Confirmation is at least a closing price below the closing price of the doji. Preferably a bigger black candle with high volume. This confirmation should appear within 3 days after the doji.
A doji or any other reversal pattern followed by a candle with a window, also called a gap, is mostly a reliable reversal indication.
There is extra pressure on the market when more doji’s appear together.
A doji in a downtrend has much less value than a doji in an uptrend. A doji in a downtrend always needs confirmation as a reversal signal. Confirmation is at least a closing price above the closing price of the doji. Preferably a bigger white candle with high volume. This confirmation should appear within 3 days after the doji.
A doji in a flat, neutral trading zone has no meaning.
A doji or basically any other candle pattern confirms an existing support. A doji or basically any other candle pattern confirms existing resistance.
A long legged doji is a doji with big upper and lower shadows and is also called a big wave doji. This is a warning signal for a reversal and an indication of big uncertainty in the market.
A doji star is a doji below a black candle in a down move or, above a white candle in an up move. A reversal signal to be confirmed by the next candle to become a morning doji star or an evening doji star.
Spinning bottoms are very common in a consolidation phase at a price bottom. The most important characteristic of a spinning bottom is the small body. The body can be black or white and has no shadows, up to big shadows. As such, this candle is neutral, and the market does not know which way to go. Nevertheless, just like a doji, this may be the first indication of a possible price reversal.
Spinning tops are very common in a consolidation phase at a price top. The most important characteristic of a spinning top is the small body. The body can be black or white and has no shadows, up to big shadows. As such, this candle is neutral, and the market does not know which way to go. Nevertheless, just like a doji, this may be the first indication of a possible price reversal.
Tweezer bottoms are two or more candles with bottoms at the same price level indicating support. The first candle is preferably the bigger candle; the second is the smaller one. The same price level does not have to be with low prices. A combination with other price levels is also acceptable. Tweezer bottoms are a reliable reversal signal.
Tweezer tops are two or more candles with tops at the same price level indicating resistance. The first candle is preferably the smaller candle; the second is the bigger one. The same price level does not have to be with high prices. A combination with the other price levels is also acceptable. Tweezer tops are a reliable reversal signal.
This ends my overview of candlestick basic patterns. Next time we will have a look at candlestick top reversal patterns.
Author Resource:
Want to learn more about candlestick chart patterns? You can find many technical analysis articles for free at my website: http://stocata.org/ . Sylvain Vervoort is a trader and the author of a new book “Capturing Profit with Technical Analysis” and a regular contributor to Stocks & Commodities mag.
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