Basic Shapes of Candlestick Technical Analysis Patterns

The overall length of the candlestick, from wick to wick, is the trading range – daily for the charts I’ll be showing them on, but candlesticks can be used on any timescale. The body shows the distance between the opening price and the closing price, with the color indicating which is which. The variations in shape include the length of the body and the overall length.

When there is a great difference between the opening and closing prices, the body is long and these are called ‘Long Days’. When the opening and closing prices are close together, the body is short and these are called ‘Short Days’. When the opening and closing prices are the same, the body is represented by a single horizontal line, and this is called a ‘Doji’, from the Japanese. A Doji is given great significance in candlestick analysis. By the way, more than one Doji are called Doji – the plural is the same word.

The length of the wicks also matters, as it indicates how far out from the initial and final values the trading ranged. It’s a suggestion of the volatility of the trading. Sometimes the wick is nonexistent, say if the opening price on an upday was also the lowest price traded, and that is called a ‘Shaven Bottom’, as if the wick had been shaven off the body. You can get a ‘Shaven Top’ too.

Candlesticks can be traded in isolation but a better strategy is to make use of additional analysis and indicators to increase your probability of success. So if a trend is currently bullish, look for breakouts of the high, whereas if the trend is bearish it makes sense to seek the breakouts of the low.

Doji

The true Doji has no height to the real body, showing that opening and closing prices were the same. Sometimes in the interpretation you will allow a very small body, as the same principle applies. The dash which is the body can be anywhere on the shadows or wicks, even at the top, which is called a Dragonfly Doji, or at the bottom, when it is called a Gravestone Doji because of the appearance.

This candle usually means that the market is undecided, with no real direction, and hence finishing up where it started. If it was a bull market, and the buyers were stronger, then the closing price would finish up higher; and likewise in a bear market the close would be below the open. So the Doji suggests that the buyers and sellers are in balance at this price. That’s why it’s often considered a sign that the market is about to reverse. Check out the volume on the Doji day — if it is high, that adds more significance to the Doji.

If a Doji comes in an uptrend, it supports the idea of a reversal, if the other analysis suggests it. When a Doji occurs in a downtrend it may be a reversal or sometimes it is just a resting place for the market. If you look at the volume you may find it is light on a downtrend Doji day, which would tend to confirm that it was just a rest, and not a reversal.

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