Understanding Candlestick Patterns (Part II)
The Bearish Gravestone Doji: A Doji is created when the opening and closing prices of the day are the same. However, when the opening and closing prices of the day are equal to the low of the day, the most bearish of Doji, the Gravestone Doji is formed.
These were some single stick patters that were most basic and easy to identify. Not all single stick patterns are straightforward. Some extremely useful single stick patterns rely heavily on their location on a chart.
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Making yourself familiar with these candlestick patterns and how to identify and trade based on them is another way that you can add a versatile weapon to your trading arsenal. A variety of single stick patterns can provide some terrific trading opportunities if you can spot them in the right market environment.
Dojis although appear very rarely are often associated with the reversal of the trend. We have talked about Dojis. Dojis can serve as outstanding reversal indicators. It could very well indicate that the trend maybe changing to a downtrend soon if a Doji appears in an uptrend, especially if it is a Gravestone Doji. Similarly if the Doji appears in a downtrend, it may signal that the trend may soon change to an uptrend!
The Long Legged Doji: A long legged Doji like the name long legged implies features a small stick with very long wicks on either side. The small candle on a long legged Doji is normally located very close to the center of the candlestick.
When appearing in an uptrend or a downtrend, a long legged Doji is considered a reversal signal. The long legged Doji indicates that there was a lot of uncertainty in the market after a period of directional certainty and this change of conviction often results in the change of trend.
The Spinning Top: A spinning top is formed when a candlestick has a small body. It has wicks stick out on both ends. The body of the candlestick should appear to the center of the range of the days price action. The wicks should also be as wide as the candle section of the candlestick.
Like Doji, the spinning top is another pattern that depends on the market context and reveals a tight battle between the bulls and the bears. Whenever, there is a close battle between the bulls and the bears, eventually one side have to give in. When this happens, an explosive move in one direction is possible.
The spinning tops make frequent appearances. Dojis appear very rarely. However, like Dojis, the spinning tops are nice indicators that the trend is about to end and reverse itself.
Belt Holds: There are two types of belt holds: bullish belt hold and bearish belt hold pattern. Bullish belt hold candlestick pattern features an opening price equal to the lowest price of the day and a closing price near the highest price of the day which leaves a small wick near the top of the candle.
Belt holds also depend on market context. Belt hold candlestick patterns are excellent trend reversal signals. Bearish belt holds candlestick patterns on the other hand opens on their highs and close near their lows. Bearish belt hold has a small wick near the bottom of the candle.
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