Marubozu , Spinning Top, Dojis.
If you are into stock market then you all should be familiar with the candlesticks but do you know that candlestick patterns can be used to make trading decisions thus keeping knowledge of what to do when a particular candle pattern appear on a chart can be very rewarding. There are various type of candlestick patterns but they can be broadly classified into two groups that are single and multiple candlestick patterns.
We will start by learning about Single Candlestick Patterns
First candlestick pattern in Single Candlestick Pattern is Marubozu.
Marubozu CandleStick Pattern-
A candlestick with tall body and no upper or lower shadow.
Usually we check prior trend to decide the market direction after pattern appears but in case of Marubozu we have to ignore the prior market trend. Indication is so strong that trade can be taken solely based on the Marubozu itself without looking at any prior trend.
Marubozu itself has two types — Bullish and Bearish Marubozu.
Bullish Marubozu — In this open = low and close = high. This is Green in colour. This shows strong buying momentum in the market and indicates to go long. After a Bullish Marubozu formation the market tends to go higher. Textbook definition of Marubozu suggest that it will have no upper and lower shadow however in real market small variation can be there like a very small upper or lower shadow with a large body can also be considered as Marubozu.
Stop loss will be the lower of the bullish marubozu.
In the chart below, Arrow points to Bullish Marubozu after which market rallied to a new high.
Bearish Marubozu — In this open = high and close = low. This shows a strong selling pressure in market and after a Bearish Marubozu formation market tends to go down. Similarly in Bearish Marubozu , Small variation from its textbook definition as well can be considered as Bearish Marubozu.
Stop loss can be placed at the high of the Marubozu candle.
In picture below arrow points to a Bearish Marubozu and after this market fell.
Next single candlestick pattern is Spinning top
Spinning Top CandleStick Pattern-
Spinning top have a small body and upper and lower shadow are almost equal. It does not give any clear indication about market like marubozu.It is used with the prior trend and after spinning top appearance either their can be a continuation or a reversal is also possible.
Spinning tops are like the silence before the storm , after their appearance a strong continuation or reversal is possible.
Its implication is similar in both uptrend and downtrend , after spinning top appear market can either continue or reverse its direction.
In picture below see how the downtrend continued after spinning top appeared on chart.
One more example show how the market reversed from uptrend to downtrend after a spinning top appeared on chart.
Next single candlestick pattern is Dojis
Doji CandleStick Pattern—
Doji have Non Existent body and upper and lower shadow can be of any length. Color of the candle does not matter in case of Doji.
Similar to Spinning Top, Doji also shows indecision in the market and have same implication as spinning top that is after Doji appears their can be continuation or reversal in market.
Usually spinning top and Dojis appear in cluster that shows indecision in market.
In the chart below Doji and spinning top appeared togethed showing indecision in the market and after a brief period a sharp reversal happened.
