Single Candlestick Formations


Access Free Content

 

Video Transcript:

Hello traders. Welcome to the second module of the advanced technical analysis course.

In this module we are going to go through candlestick formations. On this lesson you will learn everything about single candlestick formations.

So the first single candlestick formation that we are going to go through is are the dojis. There are four kinds of dojis, but the doji has a very particular body. The opening and closing price of the asset is almost the same during a given period. This means that their bodies are very small and sometimes even flat.

These candles indicate indecision in the market and a very balanced bull verses bear pressure. So if these candles are found at a support or resistance area, you can certainly assess that there is a struggle between bulls and bears and there might be a reversal in play.

Dohi candlestick patterns

So let’s go through them. There are four kinds of doji candles, as we already said. The first one is the standard doji. It has two short wicks of similar length and a flat body. It suggests extreme indecision in the market and when found in areas of support and resistance it might indicate a possible reversal. The candlestick looks like this. It’s called a standard doji or a star doji, because the body is flat and the wicks are not long indicates extreme indecision.

Now on the contrary we have the long legged doji. It has a long upper wick and a long lower wick and a flat body. It’s long wick suggest a volatile yet indecisive environment and that a strong reversal move may occur. This is how the long legged doji looks like. This is very different than the standard doji, because of the extreme moves to the upside and to the downside you can see that the struggle between the bulls and the bears is even harder and even though we are in an indecisive environment, it is highly volatile because of the range of the candle itself.

When you see a long legged doji at an area of support or resistance, you might have a reversal in play. Pay attention to these two kinds of dojis and lets go to the third one.

The third one is the gravestone doji. This candlestick has a long upper wick and a flat bottom. When found at the top of an up move, these candlesticks suggests an exhaustion of the buying pressure and that a reversal might be in play. The doji looks like this. It has a flat body. Because it’s a doji, it means that the opening price and the closing price are almost the same but it has an extremely long upper wick.

If this gravestone doji is found at the top of an up move it means not only that the buying pressure might be exhausted, but that there is so much bearish pressure there that the move that we made all the way up here couldn’t possibly be supported and we end up closing down here. So the information that you get from the grave stone doji at the top of an up move is that bears might be getting control of the situation.

On the other hand, the dragon fly doji is a candlestick that has a long down wick and a flat top. When this is found at the end of a down move, this candlestick indicates an exhaustion of a bear pressure and possible full reversal and the candle stick looks like this.

Again, if this candle stick is found at the end of a down move it means that even though we had a bearish pressure that move the price all the way up here, the bullish pressure that we encounter here made the candle close at the same level that it open.

So it means that bulls might be taking over and we might have a possible bullish reversal in play. So you have to, of course, use areas of support and resistance of previous highs and previous lows to get confirmation when you see these gravestone dojis at the top of an up move or a dragon fly doji at the bottom of a down move.

Now let’s go to the second kind of single candlestick formations and these are called marubozu. A bearish and a bullish marubozus are candlesticks with long bodies and no wicks. These candle stick indicate that the asset has traded strongly in one direction the last period.

The bullish marubozu indicates that the buyers are in control and that a continuation of the rally is in play. On the other hand, a bearish marubozu indicates that sellers are in control and that a continuation of the dip is in progress.

It is better to play these continuations at the beginning of the move. Now here is an example of a bullish marubozu and here is a bearish marubozu. This is more like a confirmation pattern, but it is a continuation pattern.

Let’s say that you have a reversal at a support area and just after the reversal you get a bullish marubozu. This means that the bullish pressure is so intense that during the last period price only rallied, it didn’t correct to the down side. So this indicates an extreme bullish pressure, so you can jump in after the marubozu closes and just trade the trend. On the other side with a bearish marubozu, you can do the same on a bearish reversal or a bearish down trend.

Now the third kind of a single candlestick patterns that we are going to go through is hammer and hanging man. Now the hammer, this candlestick has a small body, a flat top and a long down wick. This is a bullish reversal formation. When found in a down trend, it indicates a rejection of the zone and the start of a strong bullish pressure.

Hanging Man candlestick pattern

Here is an example of what a hammer looks like. We have the down trend, we have a small body and a long wick to the down side. What does this wick to the down side inform us? It tells us that even though we had a bearish pressure that made price move to this extreme, the bullish pressure encountered at these levels was stronger and made the candle close near its open price. So this might indicate a reversal at these levels.

The hanging man looks exactly like the hammer, but is found at the top of an up move. This candlestick has a small body and a flat top and a long down wick. This is a bearish reversal formation. When found at the top of an up trend, it indicates the exhaustion of the move and the start of a selling pressure.

Here you have an example of a hanging man. At the end of an up move, you can see that the bodies of these bullish candles are getting smaller and smaller and then we get a hanging man. This indicates and exhaustion of the bullish move, because even though price opened here, it couldn’t go higher.

You can see the price opened here and it couldn’t go higher. We don’t have any upper wick and what the price did, it only went down. It even went down to this extreme. So this is called an exhaustion of a move and when the wick rejects the stone, it’s called a rejection, even though the candles are the same. They are found in two different places.

And the last ones are inverted hammer and shooting star. The inverted hammer and the shooting star look alike, but they are found in different places. The inverted hammer is a candlestick that has a small body and a flat bottom and a long upper wick. This is a bullish reversal formation and when found in a down trend it indicates an exhaustion of the up move and the start of a strong bullish pressure. This is an example of an inverted hammer.

You can see that we have a bearish move and then we have flat bottom indicating that we couldn’t go any lower and an exhaustion of the bearish move that can strongly suggest a reversal might be in play.

The hanging man looks exactly like the inverted hammer. It has a small body, a flat bottom and long upper wick. This is a bearish reversal formation and when found at the top of an up trend it indicates rejection of the zone and start of selling pressure. Here is an example, you can see that we are in an up trend and then we hit an area that is rejected by this wick.

We open here but even though we went all the way up to this extreme, we close near the candle’s open. This indicates that we have found a strong selling pressure at the top of this move and that a bearish reversal might be in play.

So whenever you find these single candle stick patterns at tops, bottoms, support or resistance, just wait for the confirmation of the reversal and play them.

Adam

More About

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

View Posts - Visit Website

Comments are closed.