December 2, 2010
Candlestick Patterns-The Long Legged Doji, The Dragonfly Doji And The Gravestone Doji
There are certain Candlestick Patterns that are vital to your trading. They are vital because they identify possible trend reversals. Why should you identify these candlestick patterns? Because they can make you money! Failure to spot these candlestick patterns can lead to costly trading mistakes.
Some candlestick patterns are simple while others are complex. In this article, we will talk about one of the most important candlestick pattern known as a Doji. Doji is a simple candlestick pattern that can give early warning about the potential trend reversal.
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.
These Dojis are distinguished by the fact that the opening and the closing prices are the same.
When a Doji Pattern appears after a long uptrend, it means a potential top.
Similar is the case in a long downtrend. The bears had been winning the battles but the appearance of the Doji means that the bulls have found the courage to win and the tide may soon turn in favor of the bulls in the market.
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.
If a Long Legged Doji is formed outside the Upper Bollinger Band and is confirmed by a sell signal on the Stochastics or any other indicator, it means a potential trend reversal.
In case of a Gravestone Doji, buyers had tried to take the prices higher after the open but could not prevail. The closing prices was the same as the opening price that was also the low of the trading session. A Dragonfly Doji is the opposite of the Gravestone Doji. Selling kicked in early on but later the buyers stepped in and closed the price at the open which was also the high of the day.
Now, you need to assess the appearance of a Doji by carefully noting when it occurred on the candlestick chart. Appearance of a Doji in the early stages of a trend may mean nothing. Similarly, if you find the Doji appearing in the middle of a Bollinger Band, it may mean a pause rather a reversal of a trend.
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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