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Tuesday, August 11, 2009

Candlestick Patterns Explained (Part II)

By Ahmad Hassam

The Bearish Gravestone Doji: Dojis appear very rarely in the candlestick patterns. A Doji is created when the opening and closing prices of the day are the same. It is very rare for the opening and closing prices for the day to exactly equal each other. However, the Gravestone Doji is formed when the opening and closing prices of the day are equal to the low of the day, the most bearish of Doji.

Some extremely useful single stick patterns rely heavily on their location on a chart. Not all single stick patterns are straightforward. Some single stick patterns that have been discussed earlier were most basic and easy to identify.

A variety of single stick patterns can provide some terrific trading opportunities if you can spot them in the right market environment. Making yourself familiar with these candlestick patterns and how to identify and trade based on them is another way that you can add a versatile weapon to your trading arsenal.

We have talked about Dojis. Dojis are often associated with the reversal of the trend. Dojis can serve as outstanding reversal indicators. It could very well indicate that the trend maybe changing to a downtrend soon if a Doji appears in an uptrend, especially if it is a Gravestone Doji. Similarly for a downtrend!

The Long Legged Doji: A long legged Doji like the name long legged implies features a small stick with very long wicks on either side. The small candle on a long legged Doji is normally located very close to the center of the candlestick.

The long legged Doji indicates that there was a lot of uncertainty in the market after a period of directional certainty and this change of conviction often results in the change of trend. When appearing in an uptrend or a downtrend, a long legged Doji is considered a reversal signal.

The Spinning Top: A spinning top is formed when a candlestick has a small body. It has wicks stick out on both ends. The wicks should also be as wide as the candle section of the candlestick. The body of the candlestick should appear to the center of the range of the days price action.

The spinning top is another pattern that depends on the market context and reveals a tight battle between the bulls and the bears like Doji. Eventually one side have to give in whenever, there is a close battle between the bulls and the bears. An explosive move in one direction is possible when this happens.

The spinning tops make frequent appearances. Dojis appear very rarely. However, like Dojis, the spinning tops are nice indicators that the trend is about to end and reverse itself.

Belt Holds: There are two types of belt holds: bullish and bearish. Bullish belt hold features an open equal to the low and a close near the high which leaves a small wick near the top of the candle.

Bearish belt holds on the other hand opens on their highs and close near their lows, thus leaving a small wick near the bottom of the candle. Belt holds also depend on market context and are excellent trend reversal signals. - 23208

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