Spinning Tops
Candlesticks
with a long upper shadow, long lower shadow and small real bodies are called
spinning tops. The color of the real body is not very important.
The pattern indicates the indecision between
the buyers and sellers.
The small
real body (whether hollow or filled) shows little movement from open to close,
and the shadows indicate that both buyers and sellers were fighting but nobody
could gain the upper hand.
Even
though the session opened and closed with little change, prices moved
significantly higher and lower in the meantime. Neither buyers nor sellers
could gain the upper hand, and the result was a standoff.
If a
spinning top forms during an uptrend, this usually means there aren't many
buyers left and a possible reversal in direction could occur.
If a
spinning top forms during a downtrend, this usually means there aren't many
sellers left and a possible reversal in direction could occur.
Marubozu
Sounds
like some kind of voodoo magic, huh? "I will cast the evil spell of the
Marubozu on you!" Fortunately, that's not what it means. Marubozu means
there are no shadows from the bodies. Depending on whether the candlestick's
body is filled or hollow, the high and low are the same as its open or close.
Check out the two types of Marubozus in the picture below.
A White
Marubozu contains a long white body with no shadows. The open price equals the low price and the close price equals the high price. This is
a very bullish candle as it shows that buyers were in control the entire
session. It usually becomes the first part of a bullish continuation or a
bullish reversal pattern.
A Black Marubozu contains
a long black body with no shadows. The open
equals the high and the close equals the
low. This is a very bearish candle as it shows that sellers
controlled the price action the entire session. It usually implies bearish continuation
or bearish reversal.
Doji
Doji candlesticks have the same open and
close price or at least their bodies are extremely short. A doji should have a
very small body that appears as a thin line.
Doji
candles suggest indecision or a struggle for turf positioning between buyers
and sellers. Prices move above and below the open price during the session, but
close at or very near the open price.
Neither
buyers nor sellers were able to gain control and the result was essentially a
draw.
There are
four special types of Doji candlesticks. The length of the upper and lower
shadows can vary and the resulting candlestick looks like a cross, inverted
cross or plus sign. The word "Doji" refers to both the singular and
plural form.
When a
Doji forms on your chart, pay special attention to the preceding candlesticks.
If a Doji
forms after a series of candlesticks with long hollow bodies (like White
Marubozus), the Doji signals that the buyers are becoming exhausted and
weakening. In order for price to continue rising, more buyers are needed but
there aren't anymore! Sellers are licking their chops and are looking to come
in and drive the price back down.
If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak. In order for price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap.
While the
decline is sputtering due to lack of new sellers, further buying strength is
required to confirm any reversal. Look for a white candlestick to close above
the long black candlestick's open.
In the
next following sections, we will take a look at specific candlestick formations
and what they are telling us. Hopefully, by the end of this lesson on
candlesticks, you would know how to recognize candlestick patterns and make
sound trading decisions based on them.
