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 The Basic Candlestick Patterns

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PostSubject: The Basic Candlestick Patterns   Fri Dec 05, 2014 11:11 am

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Marubozu Candles

Strength: Strong
Simply put a Marubozu is a candle with no wicks. So if it’s a bullish Marubozu its open is its low and its close is its high. If you see a bearish Marubozu, it’s open is its high and its close is its low. A Marubozu is a strong continuation pattern. It suggests that the bulls/bears are in total control of the market.
A white (bullish) Marubozu suggests that the bulls are in total control. Think about it in terms of the battle between the bulls and the bears mentioned in the last section. When the candle opened the bears did not manage to make a new low. The bulls pushed up almost consistently closing at the high. The candle suggests that the bulls have total control.
A red (bearish) Marubozu suggests that the bears are in total control. Again, think about it in terms of the battle between the bulls and the bears. From when the candle opened the bulls could not gain a foothold. The candle moved down pretty much consistently without the bulls being able to hold the fall back. The candle closed at its low.
Marubozu candles are a very strong indication of a continuation. Since the bulls/bears had so much power when forming the Marubozu that power can be expected to carry through to the next candle.

Spinning Top

Strength: Medium
A Spinning Top indicates a strong fight going on between the bears and the bulls. The bulls are giving it their all, as are the bears. Nobody has won the fight yet, so the candle closes near to its open price. Take a look at the spinning top below for a clearer explanation.
The spinning tops body can be either bullish or bearish, but that isn’t overly important. What’s important is that there are two wicks to either side, that are much larger than the body. This indicates that there was a struggle between the bulls and the bears but neither had a decisive victory. So in a trend, a spinning top indicates indecision.
Spinning tops are very important in predicting reversals, as they often occur when a trend is dying out.
If a Spinning Top appears during a bullish trend it suggests that the bulls could be losing control, and the trend could be ending. This is because until the spinning top formed the bulls had a very strong bullish trend. The spinning top suggests to traders that the bears are fighting back and the bulls are struggling to continue the bullish trend.
You will often hear spinning tops being called reversal candles. The Forex4Noobs team tends to call them indecision candles instead. The term reversal candle is a bit of a misnomer. A spinning top does not indicate a definite reversal only the possibility of a reversal.
The colour of the body is of a Spinning Top is not extremely important. However, it can suggest which side had more power. So if the spinning top has a white body it suggests that the bulls are slightly stronger than the bears, and vice versa.

Dojis

Strength: Medium
Dojis come in different shapes and forms but they are all characterized with having no body. So this means that the price opened at the same price as it closed. Many Fx Ninjas subscribe to the ‘close enough is good enough’ philosophy with Dojis. So if the candle has a body but it is very small they will still consider the candle a Doji.
A Doji is also an indecision pattern and it is similar to a spinning top. When you see a Doji on your chart, it means there is a strong fight going on between the bears and the bulls. The bulls are giving it their all, as are the bears. Nobody has won the fight yet, so it closes at open or very close to it.
Looking at the picture above a Doji tells us the same story as a spinning top does. In fact pretty much all indecision (reversal) candles tell you the same thing. This will be discussed in greater detail in the next section.
All Dojis indicate indecision and possible reversals, if they form in a trend. If a Doji forms in a bullish/bearish trend it suggests that the bulls/bears have become exhausted and the bears/bulls are fighting back.
Don’t get too excited Ninja. Candles are not perfect. If you take a trade every time you see a Doji form in a trend you will end up losing big. Always remember these candles only indicate indecision not a definite reversal. To use indecision (reversal) candles effectively you need to look for confirmation candles and ideally use them with other forms of analysis.

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The Basic Candlestick Patterns

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