In our last lesson we learned how different candlestick formations can tell us different things about whether the buyers or the sellers won out in a particular time period. In today’s lesson we are going to look at some of the basic candlestick patterns and what they mean when looked at in the context of recent price action in the market.

The Spinning Top



When a candlestick with a short body in the middle of two long wicks forms in the market this is indicative of a situation where neither the buyers nor the sellers have won for that time period as the market has closed relatively unchanged from where it opened. The upper and lower long wicks however tell us that both the buyers and the sellers had the upper hand at some point during the time period the candle represents. When you see this type of candlestick form after a runup or run down in the market it can be an indication of a pending reversal as the indescision in the market is representative of the buyers loosing momentum when this occurs after an uptrend and the sellers loosing momentum after a downtrend.



Spinning top After a Trend



The Doji




Like the Spinning Top the Doji Represents indecision in the market but is normally considered a stronger signal because unlike the spinning top the open and the close that form the Doji Candle are at the same level. If a Doji forms in sideways market action this is not significant as the sideways market action is already indicative of indecision in the market. If the Doji forms in an uptrend or downtrend this is normally seen as significant as this is a signal that the buyers are loosing conviction when formed in an uptrend and a signal that sellers are loosing conviction if seen in a downtrend. Most traders will place greater significance on the Doji when it forms in a market that is in overbought or oversold territory.


Doji After a Trend


That completes our lesson for today. In our next lesson we are going to look at several more candlestick formations known as the Bullish and Bearish Engulfing Candlestick Patterns and how traders use these in their trading strategies so we hope to see you in that lesson. As always if you have any questions or comments please feel free to leave them in the comments section below so we can all learn to trade together, and have a great day!

Hello Dave,

So far I have looked at the videos up to this one on the Doji. As you have repeated many times, we have 20-20 hindsight so its often easy (ish) to see how the various predictors have suggested a favorable trend.

You also mentioned that some of the indicators are favored by traders. I wonder if those favored indicators are also a reflection of their trading style?

Is there a forum/blog that discusses how these indicators have performed hstorically using live data?

Again, many thanks for these superb videos.

Hi Phil,

Glad to hear from you.

I am not aware of any websites that publish how different indicators have performed on live data. I think this is because, as I discuss in my videos, traders normally use indicators as an indication of what is happening in the market and therefore combine multiple analytical factors such as multi Timeframe analysis, Support and resistance, and indicators to determine where to place trades.

From my experience, trading based off of 1 piece of analysis alone is a losing game.

Hope that helps. If there are any other questions or comments please feel free to post them.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Hi David,

This is my first post on your fantastic forum, thank you for providing such informative videos, your coverage of a wide area of topics is terrific. I echo your sentiment that the more confirmations the better, I would also like to say that after you trade for awhile, you develop a 'feel' for your area (in my case I play equity stocks), you can almost sense what the market is doing and after you have studied your stock closely you can relate to it. This is not 'falling in love with it', I am speaking of understanding how it performs regularly. Close observation over a prelonged period of time gives you valuable insight into the nuances of the particular stock and somewhat of a trading advantage.

Keep up your fantastic work
Tailwag

Hey Tailwag,

Welcome to the community and thank you for the compliment I am glad you like the videos.

While I know people who are successful trading a wide variety of instruments like you I like to focus in on a small universe of instruments and get to know how they move. Like the ability to scan multiple instruments for opportunities I think the lessons learned focusing on a small universe of instruments can also provide a trading edge.

Look forward to seeing you around the discussion forums.

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.