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
1. Typical candlesticks:
All of the four prices are different from each other. A typical candlestick can be Bullish or Bearish.
Typical Candlesticks
2. Marubozu:
Marubozu means shaven. The candlesticks that have no shadow are called Marubozu.
What does Marubozu mean in the market?
In Bullish Marubozu, the open price is the same as the low price and the close price is the same as the high price. Bullish Marubozu means that Bulls are so strong and didn’t let the Bears take the price down when the candlestick became completed. It means there is a lot of buying activity in the market. The longer the candlestick, the stronger the Bulls.
In Bearish Marubozu, the open price is the same as the high price and the close price is the same as the low price. A Bearish Marubozu means that Bears are strong and there is a lot of sell activity in the market specially when the Bearish Marubozu is longer than the previous candlesticks.
What does it mean in general?
1. When you see a Bullish Marubozu, you should not take a short position because the Bulls are strong and the price can go higher.
2. When you see a Bearish Marubozu, you should not take a long position.
3. When you see a Bullish Marubozu at end of a downtrend, it is a reversal signal. You can just wait for the next candlestick and if it is Bullish too, you can take a long position.
4. When you see a Bearish Marubozu at end of an uptrend, it is a reversal signal. You can just wait for the next candlestick and if it is Bearish too, you can take a short position.
5. If you already have a long position and you see a Bearish Marubozu at the end of the uptrend, you should close your position and take your profit.
6. If you already have a short position and you see a Bullish Marubozu at the end of the downtrend, you should close your position and take your profit.
Of course we will take about the candlesticks patterns and you will learn more about taking the right decision when you see different kinds of candlesticks but by now, just keep in mind that Bullish/Bearish Marubozu means the Bulls/Bears are strong.
