PIP ACADEMY
The Ultimate Path to Trading
Length : 4.00 Minutes
Single Candlestick Pattern
Doji
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Doji is a trading session where the opening and closing prices either are the same or very close to each other. In other words, a Doji represents a supply/demand equilibrium and the state of indecision between buyers and sellers. When Dojis develop after an advance or decline in the market, they signal a balance between buyers and sellers and they could be used as a vital sign that the trend may be about to change. They often form at the bottom or top of a trend to signal a temporary pause in the prevailing trend or a potential reversal of the trend. It is important to note that not all the Doji candlestick patterns could lead to a reversal of the trend and one has to use them in conjunction with other technical tools for higher probability of reversal.
Spinning Top
Spinning tops have small real bodies, where the shadows can be short or long. They are not important when they appear in trading ranges, but they are significant when they develop as part of a price pattern, since they represent a battle between bears and the bulls. They indicate indecision about the future direction of the market when they appear after a prolonged rally or reaction, it is a sign that upside/downside momentum is dissipating. When trading spinning tops for reversals, it is important to wait for the confirmation of the next candle. As you can see in the chart below, there is spinning top formed at the bottom of the trend signaling a potential reversal, and also the next candle is bullish and confirm the reversal.
Umbrella Lines / Inverted Umbrella Lines
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Umbrella lines tend to have a rather square than a rectangle body with a long lower wick and no upper wick. The long lower shadow in the umbrella lines shows the evidence of the buying pressure.
Umbrella line indicates that sellers were the main dominants during the day trading, thus pushed the prices lower. But at the end the buyers were able to take take control and push the price back up and close to the opening level. Umbrella candlestick pattern has the potential to signal a bullish reversal at the bottom and a bearish reversal at the top.
On the other hand, inverted umbrella lines are just the opposite of the umbrella lines have a small body with a long upper wick and no lower wick. The long upper shadow communicates the existence of selling pressure, but at the same time signals that there are still plenty of buyers around which pushed price high. But, then at the end sellers were able to fight it off and push the price back near to the opening level. Although the Inverted Umbrella candle signals the evidence of buying pressure, it may show a failed rally and indicate a potential bearish reversal if it appears after a long uptrend.
Generally, umbrellas have no real significance if they develop within the confines of a trading range. However, if formed at the important support or resistance levels could be a good confirmation signal for a change in the direction of the market.