Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Harami
Morning and Evening Star and Abandoned Baby
6. Tweezers
Tweezers is made up of two candlesticks that are next or so close to each other. They have identical highs at the top of the market or identical lows at the bottom of the market. The Tweezers usually becomes formed by the candlesticks shadows but it can also be made by the bodies of the shaven candlesticks. The two candlesticks that form Tweezers can have small bodies like Doji and Hammer candlesticks.
Tweezers can not be considered as a strong reversal signals and it needs confirmation but you have to be careful when you see a Tweezers signal. You know what I mean by “be careful”.
Tweezers that are formed right under resistance lines or above the support lines and also under or above the Fibonacci levels that act as resistance or support are important especially when they are made up of two Doji candlesticks. The longer the shadows, the more potent the Tweezers signal.
It is also possible that you see a few or even several candlesticks between the two candlesticks that form the Tweezers pattern. Even in this case you should not ignore the Tweezers as a potential reversal signal.
When there are several candlesticks between the two that make the Tweezers pattern, they may form Double Tops or Double Bottoms patterns that show the levels of resistance or support.
Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Harami
Morning and Evening Star and Abandoned Baby
5. Morning and Evening Star and Abandoned Baby:
Morning star becomes formed by three candlesticks. This pattern can be seen at the bottom of a downtrend. It is known as a strong reversal signal.
1. The first candlestick should be a Bearish candlestick with a considerable body.
2. The second candlestick is a small candlestick that is formed lower than the first one. This candlestick can be Bearish or Bullish. In fact Morning star is the second candlestick but we have to have the first and the second candlesticks for a Morning Star signal.
3. The third candlestick is a Bullish candlestick that is formed higher than the second one and its body covers a significant portion of the first candlestick.
This pattern is called Evening Star when formed at the top of an uptrend:
The effectiveness and potency of the Morning Star and Evening Start patterns as reversal signals is dependent on some special factors that you have to considered:
1. The distance (gap) between the morning or evening star with the first and third candlesticks. The bigger gap, the stronger signal.
2. The degree of the coverage of the first candlestick by the third one. The bigger coverage, the stronger signal.
3. The bigger trading volume in the third candlestick than the first one.
Sometimes the Morning or Evening Star is a Doji candlesticks. Again in this case, the most important thing is the gap between the first and third candlestick and the Doji.
Sometimes, the Morning or Evening Star is a very small candlestick with small or no shadows. The gap is so big and even none of the candlesticks shadows cover any part of the Morning or Evening Star. This patterns is called Abandoned Baby which is a very strong reversal signal. Because of the high volatility, this pattern is very rare in the forex market and can only be seen in bigger time frames but it can be seen in the stock market in smaller time frames like one hour.
Abandoned baby can be seen both at the top of an uptrend or bottom of a downtrend.
Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Harami
Morning and Evening Star and Abandoned Baby
3. Piercing Line
A Dark Cloud Cover that happens at the bottom of a downtrend is know is as Piercing Line.
When you see a Dark Cloud Cover at the top of an uptrend or a Piercing Line at the bottom of a downtrend you have to wait for the next candlestick.
If the next candlesticks after a Dark Cloud Cover is a Bullish candlestick that keeps on going up and goes higher than the high price of the second candlestick, then you should consider the Dark Cloud Cover as a continuation signal.
But if the next candlesticks after a Dark Cloud Cover is a Bearish candlestick that goes down and preferably lower than the close price of the second candlestick, then the Dark Cloud Cover you have is a reversal signal.
The same thing is correct about the Piercing Line:
If the next candlesticks after a Piercing Line is a Bearish candlestick that goes down and goes lower than the close price of the second candlestick, then the Piercing Line you have is a continuation signal.
But if the next candlesticks after a Piercing Line is a Bullish candlestick that keeps on going up and preferably goes higher than the high price of the second candlestick in the Piercing Line, then the Piercing Line you have is a reversal signal.
Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Harami
Morning and Evening Star and Abandoned Baby
3. Dark Cloud Cover
It is a Bearish reversal signal that can be formed at the top of an uptrend by two candlesticks. The first one is Bullish and the second one is Bearish. Dark Cloud Cover is formed when the second candlestick is started above the high price of the first candlestick but goes down and becomes finished above the open price of the first candlestick.
Dark Cloud Cover can be considered as a stronger reversal signal when:
1. The closing price of the bearish candlestick is close to the opening price of the previous candlestick.
2. Both candlesticks are shaven (they have no shadow) and the bearish candlestick is opened at the close of the bullish candlestick and also is closed at the close of the bullish candlestick.
3. When the bearish candlestick is opened above a strong resistance and then goes down.
( From The Language of Japanese CandleSticks - The Only Real Time Indicators)
Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Morning and Evening Star and Abandoned Baby
Combination of CandleSticks:
Candlesticks are important signals individually. However combination of candlesticks can also generate very strong reversal signals.
1. High Wave
A group of candlesticks that have small bodies and long shadows are called High Wave. High Wave is a very strong reversal signal at the top of an uptrend or bottom of a downtrend.
2. Engulfing Pattern
This pattern is a very strong reversal signal at the end of a trends. Engulfing pattern is formed by two candlesticks with different colors. The body of the second candlestick should completely engulf the first one. The shadows may also be engulfed but it is not necessary. The first candlestick can also be a Doji.
Engulfing pattern is stronger when the first candlestick has a small and the second candlestick has a big body. Also when the second candlestick engulfs more than one candlestick, the pattern is stronger.
( From The Language of Japanese CandleSticks - The Only Real Time Indicators)
Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Harami
Morning and Evening Star and Abandoned Baby
4. Hammer and Hanging Man:
Hammer is kind of candlestick that can be seen at the bottom of a downtrend. Hammer has no or a very small lower shadow. The hammer candlestick which is seen at the top of an uptrend is called
Hammer and Hanging Man have three identifying features:
1. The body is in the upper third of the price range.
2. The lower shadow is twice of the length of the body.
3. They have no or a very short upper shadow.
Like Doji, Hammer and Hanging man signal indecision and uncertainty and need confirmation.
5. Shooting Star:
It is an inverted hammer at the top of the uptrend. Its color can be Bullish or Bearish. A Shooting Star at the bottom of a downtrend, is called Inverted Hammer. Like Doji and Hammer, Shooting Star and inverted Hammer need confirmation.
A gap between the Shooting Start or Inverted Hammer and the next candlestick is one of the confirmations. A big Bearish candlestick after the Shooting Start is another confirmation. Generally, confirmation is something that confirms that the price has changed the direction.
( From The Language of Japanese CandleSticks - The Only Real Time Indicators)
Different shapes of the candlesticks
Typical candlesticks & Marubozu
Doji
Hammer and Hanging Man & Shooting Star
High Wave & Engulfing Pattern
Dark Cloud Cover
Piercing Line
Harami
Morning and Evening Star and Abandoned Baby
3. Doji:
Doji means unskillfully. These kinds of candlesticks are called Doji or unskillfully because they don’t have a body. Why? When the open price and close price are the same we will have a Doji.
So Doji candlesticks have no color and so they are neither Bullish nor Bearish. What does it mean? It means Both Bulls and Bears have the same power and are matched and the price doesn’t know where to go. It doesn’t know if it goes up or down because Bulls are not able to increase the price and Bears are not able to decrease it. So Doji candlesticks are indecision and uncertainty signals.
All kinds of Doji candlesticks needs confirmation. I will tell you what confirmation means.
There are different types of Doji candlesticks. The most important one is called Rickshaw man. In Rickshaw man the cross bar is roughly central.
Rickshaw man is a strong indecision signal. So you when you see it at the top of an uptrend, it means the price can go higher, or go down or becomes range.
Another kind of Doji is called Gravestone:
This kind of Doji also means indecision and when it is seen at the top of an uptrend it means the prices wants to bounce down.
At the bottom of the market sometimes you see the Inverted Gravestone:
Inverted Gravestone is also known as Dragonfly.
Of course it doesn’t mean that inverted gravestone or gravestone can not be seen at the top or bottom of the market. In both cases they signal indecision.
Doji can be seen in some other different shapes too:
Sometimes Doji has a small body:
What should you do when you see a Doji?
As I said, Doji means indecision and uncertainty. When it is seen at the top of an uptrend or at the bottom of a downtrend, it means the price is uncertain to go up or down or sideways. When you see a Doji, if you already have a position, you have to take your profit and if you don’t have any position, you have to wait for the confirmation to choose a direction and enter to a trade.
What do I mean by confirmation? The next candle sticks can work as a confirmation. For example when you see a Gravestone at the top of an uptrend, you should get ready to go short but first you have to wait for the next candlestick or even next two candlesticks. If they are Bearish, it means the price has changed the direction and you can go short.
Please note that Doji candlesticks that have longer shadows, are stronger.
As you see the Doji is confirmed by the next candlestick and the price went down.
( From The Language of Japanese CandleSticks - The Only Real Time Indicators)
