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The Importance of a Doji Candlestick Pattern

10/10/2014

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Doji candlestick example chart

Doji

Among all the candlestick patterns, the Doji is probably the most discussed pattern. No matter how much someone is in love with technical indicators or western price patterns, the Doji always catches everyone's attention. Even people who are absolutely new to technical analysis definitely knows something about Doji or have heard of it.

The questions to answer in relation to a Doji are - How is a Doji different from other important candlestick patterns, which also appear at the top & bottom to signal trend reversals? And why does the Doji get such special recognition? There are also many such other questions, which I will try to answer in a few of my future posts. Here lets get to know the Doji first.
Doji example candlestick chart

Formation of the Doji Candlestick Pattern

When it comes to the formation and identification of candlestick patterns, the Doji is indeed one of the most crucial in the larger subject of candlesticks.

Its formation represents the equilibrium between the buyers and the sellers in the market. The opening price & the closing price are the same or have a very minimal difference hence forming a cross like shape. With the closing price finishing very near to the opening price, you will then see either a very small real body or no real body. That is when you have a candlestick Doji pattern.

Color Of the Doji Candle

When the opening price and the closing price of a candle are the same, we have a colorless Doji. But if they vary even within a couple of points we get either red or green colored Dojis. If the body of the colored Doji is very thin, then the color of the Doji candle does not matter & can be ignored.
Cnadlestick chart with example doji indicated

Other than a trend reversal, what else does a Doji indicates?

When the open and close prices of a candlestick are at or near the same level, the Doji candlestick indicates indecisiveness on the part of investors/traders. Sometimes it also expresses an exhaustion in the current trend, therefore giving us a clear trend reversal signal. Hence it is very important to recognize a Doji candle and it's strength.

In conclusion, whether a trend reversal or not a Doji candlestick always carries some weight. When a Doji candle does not bring a significant trend reversal, it can still give us an important zone or an important price level, which the market won't be visiting in the near future. Sometimes such a Doji also results in a lengthy sideways market.

I'll discuss some of the different types of Doji like the long legged Doji, Dragonfly Doji etc in the upcoming posts.
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A comparative look at  hanging man, hammer & inverted hammer candlestick patterns

4/10/2014

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Posted by: Neha Gupta
Candlestick chart showing multiple types of patterns
So far in candlesticks we have discussed the hanging man, hammer and in my recent post the inverted hammer. It is always good to compare multiple patterns and understand their uniqueness as well as their similarities. If we do so it helps us in developing an understanding of the subject as a whole & also the entire learning becomes application friendly.
Cnadlestick patterns like hammer, hanging man and inverted hammer
The hanging man is a bearish trend reversal pattern, whereas the hammer and inverted hammer are both bullish trend reversal patterns. All of these patterns have smaller bodies & they have larger tails in comparison. These kind of candles basically mean that despite having a long range of price movement, the market is unable to close far from its opening price and this gives us the signal of a trend reversal if the market has been trending in a single direction for long enough.

I would suggest that a trader/investor compare many such similar looking candles on multiple charts to advance your learning of these patterns. If you want to deepen your understanding on some of the practical aspects of implementing these patterns, you must refer to my recent post on time-frames.

Similar to the inverted hammer another bearish trend reversal pattern appears at the top of market and can be very powerful, which is called a shooting star. I will be discussing this important pattern in my following posts along with the other star patterns.
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Nifty Futures - The short term to medium term outlook

3/10/2014

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Poster by: Neha Gupta
Picture
Over the last 2 to 3 weeks nifty seemed to be finding resistance at 8200 and was not able to cross these levels. About three weeks ago I had discussed the Nifty's long term charts and talked about the many important levels to watch, if the Nifty intends to correct, and this is happening right now. If you'd like to read more about my views on the Nifty's long term moves and various supports and resistances along with new targets you can refer to the previous blog "Modi-fying The Indian Economy & Markets at 8000 " here.

Today I'm discussing the 60 min chart of the Nifty & in this chart I will discuss the moves on the Nifty in respect to the shorter term. As you can see in the chart the nifty is unable to move beyond 8200, but also it doesn't seems to be falling too much either so the market has entered a stagnation phase hence there is also the confusion of the further moves.
Now sooner or later every market has to break this sideways range. I am not predicting a downward movement of the market yet but if we are going to see more significant upward moves in the future, Nifty has to correct a little else it will weaken.

You can refer to the chart above & notice that I have drawn four horizontals lines at different levels, in my opinion one has to watch these levels carefully to catch the short to medium term trends in this market. If the market keeps trading below the level of 8070, it will confirm that it intends to correct, but for that to happen it will also have to break below the levels of 7910 first. If it does this we can easily see the market heading towards levels of 7800 and 7700.

Also on the chart above I have drawn a line at the price level of 7666, one has to be extra attentive at this level because if the market reaches somewhere around here it will bounce back very quickly and might aim for new highs as this is a very strong support.
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A bullish technical analysis candlestick pattern - The Inverted Hammer

1/10/2014

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Poster by: Neha Gupta
Inverted hammer candlestick pattern on 1 minute chart

Inverted Hammer

The Inverted hammer candlestick pattern is a bullish trend reversal pattern, but many believe it is not as strong as a traditional Hammer. But I think before drawing any conclusions about the strength of an inverted hammer candlestick pattern, one should learn thoroughly to read these types of candles.

Formation of the Candle

Lets us have a look at the formation of the inverted hammer, in an inverted hammer candlestick pattern upper shadow is twice the length of the body and the candlestick will have very small or no lower shadow.
Tehhnical analysis candlestick chart

Application of the pattern

An inverted hammer generally appears at the bottom of a trend. The color of the candle can be green or red, but according to general concepts a trend reversal is more promising if the candle is Green in color i.e the close of the candle is above the open. Although I have found that in many cases reversals indicated by red colored candles are also very successful. For a successfully working example you can refer to the chart below.
Inverted Hammer Technical Analysis Chart

Confirmation towards a bullish trend

An inverted hammer indicates that the previous downtrend is about to end and the market may reverse to an uptrend or move sideways. It is important that this candlestick is followed by a bullish confirmation. This is a very efficient candlestick pattern which works in almost every market and time-frame. If you wish to read more about time-frames you can refer to my previous blog post on "How to choose the right time-frames for trading/investing" here.
Chart with multiple example of Inverted Hammer technical analysis pattern
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