Candlestick signals - The Doji

The doji is candlestick chart pattern consisting of one candle line. The ideal doji occurs when in a trading session the opening and closing prices are the same, but this rule is sometimes relative and you can consider candle line as a doji even when the opening and closing prices are few points or ticks away from each other. For example this is especially true in the forex market due to slightly different data from each platform. In charting software it looks like a cross.



Similarly like spinning top, the doji indicates market in complete balance and indecision between supply and demand. When the doji appears after an uptrend, it can signal market reversal. Probability of this signal is much higher when it's at a level of prior resistance. Altough a doji's appearance in a rally might signal a market top, but in a downtrend it may not signal a bottom, because indecision in an oversold market can be a staid place for a continuing downtrend.

The doji has it's power when it is alone or even greater when it's included in a two or three candle pattern. There are also more types of doji, depending on the position of the open and close price in candle line, but the main interpretation is similar.

Candlestick chart patterns - Spinning tops

From start, I will focus on single candle lines. Here belong also spinning tops. Some candle patterns consist of more candle lines, but we can get valuable information also from single candle line. Candlesticks help us visualize market psychology. They portray the battle between the bulls and bears. The essence of market move is in real body. Real body is part of candle line between opening and closing. And spinning top is term for a candle with a small real body. And it's not important if it's black or white (or red or green). Spinning top can but doesn't have to have lower or upper shadow. Only important factor is a small real body. One picture is worth more than tousand words:



Spinning top shows that neither the bulls or bears have dominant power. The main interpretation is that the market is in confusion and indecision. Spinning tops are also parts of many candle patterns that indicate market reversal.

Introduction to Candlestick Charts

What are candlestick charts? If you know something more about technical analysis, you probably know, that candlestick chart is type of chart used to describe price movement of an equity over time. In technical analysis in western world are more popular classic bar-charts than candlestick charts. Differences between these two I will show and describe later. One from reasons that candlesticks are not so popular between traders in western world is in my opinion that candlestick charts were introduced to them only roughly 20 years ago.

Candlestick charts have been developed in the 18th century by Japanese rice traders, that were trying to predict future prices of rice. Charts illustrated price movement based on open, high, low, and close market prices over a certain time period. You can see differences between bar charts and candlestick charts in the pictures bellow.







One from the main points of using candlestick charts is that they have their own chart patterns, that would be not so obvious in other types of charts. These chart patterns are tested by centuries of their using, what I think is enough solid proof of credibility of this method. The amount of data displayed in candlesticks is exactly the same as in bar charts, but the difference is in visual presentation and interpretation. Candlestick charts can be used for all trading time frames and with all investment vehicles like stocks, forex, commodities or options. Repeating patterns are not 100 percent accurate, but for profitable trading they don't have to be and many fortunes have been made by using this methodology.