The Four Doji Candlestick Patterns
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.
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 this pattern is often a signal for the beginning of a minor or an intermediate trend.
Failure to recognize the Doji on the candlestick chart runs the risk of buying at the top or staying far too late in the trend. Whatever, you should be immediately able to recognize these four Dojis, The Common, The Long Legged, Dragonfly and the Gravestone.
One thing common between these four Doji Patterns is the fact that the prices opened and closed at the same level. If the prices opened and closed very close forming a very small body, even then you can still recognize it as a Doji Pattern.
This means that the battle between the bulls and the bear was a draw and there was no winner. If it had been a long uptrend, this means that the bulls have exhausted their momentum and will start losing the battle soon.
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.
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.
When a Long Legged Doji Pattern is formed outside the Upper Bollinger Band after a long uptrend, it means a possible trend reversal. If it is confirmed by the sell signal on the stochastics, it is a reliable warning that a reversal is about to happen soon.
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.
Appearance of a Doji Pattern means a possible trend reversal but you need to note in which portion of the trend this pattern had appeared. If it had appeared in the beginning of the trend, it may mean nothing.
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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