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Basic Shapes of Candlestick Technical Analysis Patterns

1. Candlestick Trading Principles
2. Doji
3. Spinning Tops
4. Long Bodies
5. Reversal Patterns
6. Continuation Patterns

Candlestick Trading Principles

Here is a summary of how candlestick charting methods are best used in your trading.

• Be sure to use other Western charting analysis along with candlesticks
• The more agreement between signals (candle patterns and technical analysis) the more likely the reversal
• The candle line shows the force behind each move, as well as the price
• The candlestick pattern requires both the shape and the correct trend
• A candlestick pattern alone is not justification for a new trade
• If a Doji sets a new high, wait for bearish confirmation by a close under the Doji
• Candlesticks do not give price targets
• Set stop loss levels by other means, and know when you are wrong and must exit the trade

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.

Spinning Tops

A spinning top candlestick has a short real body, which can be either white or black, and long upper and lower wicks or shadows. In a similar way to the idea of the Doji, these can often represent indecision, and may be interpreted as a trend losing steam. When deciding if the body is particularly short, you should compare it to adjacent candlesticks. If all the trading has been with relatively short bodies, then the spinning top must be much shorter.

Long Bodies

As you may guess from the foregoing, when a candle has a long body then it is considered to be a strong indication of the market. A long white body shows strong bullish interest, while the long black body is definitely bearish. When the body is the whole candlestick, with no shadows above or below, then it is called a Marubozu.

Reversal Patterns

Candlestick patterns are very useful for spotting reversals but for the setup to mean anything there has to be a trend that is weakening. A reversal pattern is made of one or more candlesticks that often indicate a reversal in the trend. Three general points to note at the

Start:

• the pattern on its own is not enough to justify trading, the chart should be analyzed and showing a likelihood of reversal,
• for there to be a reversal, the charts must be showing an established trend, and
• most reversal patterns are specific to either a bullish or a bearish trend, so you must make sure that the reversal pattern applies to the current chart.

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Continuation Patterns

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