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Single Neutral Candlestick Patterns

There are two types of single neutral candlestick patterns:

a)            Spinning tops

b)            Doji

a)      Spinning tops

Spinning tops patterns are formed when candlesticks have a long upper shadow, long lower shadow and small real bodies. The color of the real body does not have any major importance.

When you see spinning tops on charts, it should indicate to you that there is indecision between the buyers and sellers; that is, neither of the two has been able to gain complete control of the pair.

The small real body (regardless of the color) gives indications of little movement between the open and the close price.

How to identify spinning tops

  • Presence of long upper shadow
  • Presence of long lower shadow
  • The real bodies are small
  • The color of the real body does not matter

i)                    White spinning top

The white spinning top is a single candlestick pattern that has a small white body and the upper shadow and the lower shadow are longer than the body’s length. This pattern occurs on charts when the market moves higher and then quickly lower, or vice versa, before closing above the opening price.

As a result, this forms the white body, which represents a standoff between the buyers and the sellers since neither of them won.

If a white spinning top is formed after a strong uptrend, it signifies that the bullish pressure is slowly dying off and a reversal may be imminent.

If a white spinning top is formed after strong downtrend, it signifies that the bearish pressure is slowly dying off and a reversal may be imminent.

ii)                  Black spinning top

The black spinning top forms when the upper shadow and the lower shadow are longer than the length of the real body.

This indecision pattern points that the market moves higher and then quickly lower, or vice versa, and closes below the opening price.

Therefore, this leads to the formation of the black body, which signifies that both the bears and sellers were fighting but none emerged victorious.

If a white spinning top is formed after a long rally in the forex market, it signifies that the bullish pressure is slowly dying off and the trend may reverse.

If a white spinning top is formed after strong downtrend, it signifies that the bearish pressure is slowly dying off and a potential change in trend may occur.

b)      Doji

Candlestick doji is an indecision candle that has its open price equal to its close price, or almost the same.

For the pattern to be formed on charts, price has to move above and below the open price during the trading session, and close at or very near the open price.

Doji usually have very small bodies that are seen in the form of thin lines, or they may lack real bodies totally.

When you see a doji on a graph, it should indicate to you that neither the bulls nor the bears managed to gain control of the currency pair.Therefore, you should anticipate for a market reversal.

Doji candlesticks are very important in forex trading because they indicate indecision or struggle for turf position between the bulls and the bears. Note that the word “Doji” refers to both the singular and plural form.

There are various kinds of doji candlesticks patterns. They differ according to the position the opening and closing are in relation to the bar’s range.

The four main types of doji are the long-legged doji, dragonfly doji, gravestone doji, and four price doji.

Here is a description on how to identify them on charts and use them for making sound trading decisions:

i)                    Long-legged doji

  • It has a long upper and lower shadow, which is nearly equal in length
  • It appears like a cross or plus sign
  • If price closes below the midpoint of the candles, it signifies weakness in the trading activity
  • Because it is a strong indecision candle, when it appears at the top of an uptrend, it implies that price may continue rising, go down, or enter into a range

ii)                  Dragonfly doji

  • It is seen on charts when the open, high, and close are the same, and the low forms a long lower shadow
  • It appears like a “T” having a long lower shadow without the upper shadow
  • It signifies that the bears pounced on the price and moved it lower; however, by the end of the session, the bulls managed to bring the price back to the opening level and the session high.
  • It often indicates a reversal of a downtrend

iii)                Gravestone doji

  • It is the opposite of the dragonfly pattern. The name of the pattern, gravestone doji, is taken because it appears like a gravestone
  • It is seen on charts when the open, low, and close are the same, and the high  forms a long upper shadow
  • It appears like an inverted “T” having a long upper shadow without the lower shadow
  • It signifies that the bulls pounced on the price and moved it lower; however, by the end of the session, the bears managed to bring the price back to the opening level and the session high.
  • It often indicates a reversal of an uptrend

 

iv)                Four price doji

  • It is seen on charts as a small straight line
  • It signifies that the open, high, low, and close are equal

Important notes:

  • Doji can also appear in other different shapes

the doji

  •  At times, doji may have small bodies

the doji

  •  Doji with longer shadows are stronger

How to trade forex using doji

If you spot a doji on your chart when looking for trading opportunities, then you should pay particular attention to the preceding candlesticks.

When a doji appears after a series of bullish candlesticks (for example white marubozus), the doji indicates that the bullish pressure is weakening and a reversal is imminent.

For price to continue trending up, more bullish pressure is required, but that is not present any more! And, bears are starting to eye the price to bring it back down.

Strong bullish candles and doji

 

When a doji is seen after a series of bearish candlesticks (for example, black marubozus), the doji indicates that the bearish pressure is weakening and a reversal may take place any time.

For price to continue going down, more bearish pressure is required, but that is no longer available!

As such, bulls are preparing to have a fresh call on price and bring it up.

 

Strong bearish candles and doji

It is important to wait for confirmation before you place a trade based on a doji signal. You should also not forget to check the fundamentals if they favor your trade.

For example, when you spot a doji at the end of an uptrend, you should wait for a further selling strength to confirm any reversal.

A typical scenario would be to wait for a bearish candlestick to form before pulling the trigger.

Summary

Spinning tops and doji are the two main types of single neutral candlestick chart patterns.

If you know how to identify them on charts, then they can be an essential resource in your trader’s toolbox.

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5 Responses to "Single Neutral Candlestick Patterns"

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