Understanding Candlestick Patterns (Part I)
Based only on the market activity of the previous few days, most candlestick patterns are valid. Using one of these without knowing about the previous trends wouldnt be very useful. For instance, some of the candlestick patterns indicate a change in trend.
Usually the context in which you find the candlestick pattern tells you a great deal about what you should do based on that candlestick pattern. Lets consider simple candlestick patterns first.
The Bullish White Marubozu: The longest white candle is the most bullish of the candlestick patterns. It represents the day when bulls control the market and push prices higher from the opening to the closing. With the long white candle closing near the high, chances are the bulls will be back for more buying the following day.
This means that buying has been taking place all the day. The low price on the candlestick is a good support level with the long white candle. One common feature of the long white candle is an opening price near the low of the day and a closing price near the high of the day.
The Bullish Dragonfly Doji: A day must begin and end with the same price for a Doji to be created. A Doji just looks like a cross. So essentially there is no stick in the candlestick. A Doji is formed when the opening and the closing prices are the same.
Doji patterns are usually associated with a market turn. Doji depicts a day where the battle between the bulls and the bears has been fairly equal. A Doji may not look very exciting to you. But dont be fooled.
A Dragonfly Doji is unique in that three of the four candlestick patterns- the open, high and the close are all equal. The price action depicted by the Dragonfly Doji bodes very well for those hoping that prices go higher. The low of the Dragonfly Doji day is considered a near term support level. You can make smart trades based on the Dragonfly Dojis.
The Bearish Long Black Candle: The long black candle is the direct counterpart of the long white candle discussed earlier. The long black candle is as bearish as it gets. It means that sellers take over at the beginning of the day and push prices lower and lower until the end of the day.
Price sensitivity is very low for these sellers. These sellers are selling just to get out of their trades. Seeing this type of enthusiastic selling must give you the confidence after the appearance of the long black candle that the bears will be in control for a few more days. The long black candlestick pattern is a good bearish signal. You can capitalize on this fact. - 23226
Usually the context in which you find the candlestick pattern tells you a great deal about what you should do based on that candlestick pattern. Lets consider simple candlestick patterns first.
The Bullish White Marubozu: The longest white candle is the most bullish of the candlestick patterns. It represents the day when bulls control the market and push prices higher from the opening to the closing. With the long white candle closing near the high, chances are the bulls will be back for more buying the following day.
This means that buying has been taking place all the day. The low price on the candlestick is a good support level with the long white candle. One common feature of the long white candle is an opening price near the low of the day and a closing price near the high of the day.
The Bullish Dragonfly Doji: A day must begin and end with the same price for a Doji to be created. A Doji just looks like a cross. So essentially there is no stick in the candlestick. A Doji is formed when the opening and the closing prices are the same.
Doji patterns are usually associated with a market turn. Doji depicts a day where the battle between the bulls and the bears has been fairly equal. A Doji may not look very exciting to you. But dont be fooled.
A Dragonfly Doji is unique in that three of the four candlestick patterns- the open, high and the close are all equal. The price action depicted by the Dragonfly Doji bodes very well for those hoping that prices go higher. The low of the Dragonfly Doji day is considered a near term support level. You can make smart trades based on the Dragonfly Dojis.
The Bearish Long Black Candle: The long black candle is the direct counterpart of the long white candle discussed earlier. The long black candle is as bearish as it gets. It means that sellers take over at the beginning of the day and push prices lower and lower until the end of the day.
Price sensitivity is very low for these sellers. These sellers are selling just to get out of their trades. Seeing this type of enthusiastic selling must give you the confidence after the appearance of the long black candle that the bears will be in control for a few more days. The long black candlestick pattern is a good bearish signal. You can capitalize on this fact. - 23226
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know The Candlestick Patterns. Learn Forex Trading!
posted by X - Men @ 11:46 AM
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