Learn to Predict Forex Trend Reversals with Candlesticks: Doji, Hammer etc
We will refer to the most common of candlesticks which you should use in order to identify trends.
DOJI
When the opening and closing price are identical we have a Doji candlestick. These candlesticks have no body (or almost no body) at all. They may mean the end of a trend. Market reverses but may not reverse immediately due to pressures to the opposite side that after a while lose their steam.
In order for Doji To have reversal significance:
Doji should be drawn on daily chart
It must occur on relative low or high of the market
If it occurs in the midway of a trend the signal is neutral(rickshaw man candlestick)
We should have confirmed signals of other indicators such trendline resistance etc
A Doji candlestick signaling reversal
HANGMAN
The signal is “sell at top”. It is called hangman because traders that haven’t seen it will be hanged that is caught to the violent reversal of the market. Signal is sell at top
A hangman candlestick
HAMMER
Same as hangman, but with black body. Occurs at the bottom of the trend and “hammers” all the traders that missed the market reversal. Signal is buy at the bottom.
EXTRA CAUTION: The same as dojis apply but you should also remember that the body of the candlestick is relatively small. (not bigger than one half or one third of the shadow).
A hammer candlestick
Let’s now look some combinations of candlesticks that give us extra signals.
KENUKI (TWEEZERS) CANDLESTICK
Here the two consecutive candlesticks have the same high or the same lows. In an upward trending market tweezers top occurs when highs are the same. The opposite happened in a tweezers bottom. EXTRA CAUTION: Wait and see interpretation changes to reversal when the pattern occurs after an extended move. The figures below shows tweezers candlestick in real market.
