Basic Japanese Candlestick Patterns

L

et’s talk about spinning tops, marubozus, and dojis.

You have no idea what we are talking about, right? 

But you will get it eventually if you read this article. You will feel empowered like some Kung Fu Panda. Ready to use new techniques for analysing.  

So, let’s begin. 

They’re all the basic types of Japanese candlesticks!

Let’s see what they mean in terms of price action.

Spinning Tops

Candles composed of a long upper shadow, a long lower shadow and a small body, regardless of the direction (colour) of the candle, are called Spinning top (“rotating tip”). 

Here is what they look like: 

Such formations are a sign of indecision. It means that the market shows hesitation whether to go up or down. 

The small size of the body shows the small movement in the currency pair between opening and closing, and the shadows show that both the bulls and the bears tried to move the price in their favour, but in the end failed. 

If the “rotating peak” appeared in an upward trend, this means that perhaps the bulls do not have the strength to continue up, which should lead you to think that a reversal is possible. 

If the “rotating peak” appears in a downward trend, it means that the bears may not have the strength to continue upwards, which is a prerequisite for a possible turnaround.

Marubozu

Unfortunately, it is not some strange Ancient Goddess of Money in Forex.

Otherwise, we would have prayed two times a day and make sacrifices in her name to bring us money.

Can you imagine while trading forex, you have a whole ritual small room, where there are real candles in front of the charts and you pray before each trade? 

Back to reality. 

This is a candle composed only of a long body. 

In Japanese, marubozu means something like “short haircut” or “bald head”. 

So a Marubozu candlestick is a bald candle which means it has no shadow or wick.

Here’s what marubozu looks like:

(picture of Candlestick Pattern: Marubozu)

In the case of ascending marubozu (White Marubuzo), the opening price and the lowest price coincide, as well as in the closing price, which coincides with the highest one. 

This is a very bullish candle as it shows that buyers were in control of the entire session. It usually becomes the first part of a bullish continuation or a bullish reversal pattern.

Conversely, with descending marubozu(Black Marubuzo), the opening price is the highest price reached, and the closing price is the lowest for the candle period. 

This is a very bearish candle as it shows that sellers controlled the price action the entire session. It usually implies bearish continuation or bearish reversal.

Marubuzuto, depending on its direction/color, usually represents an impulse for an upward or downward trend.

Green Marubozu

If a Green Marubozu forms at the end of an uptrend, a continuation is likely.

If a Green Marubozu forms at the end of a downtrend, a reversal is likely.

Red Marubozu

If a Red Marubozu forms at the end of a downtrend, a continuation is likely.

If a Red Marubozu forms at the end of an uptrend, a reversal is likely.

Doji

Why the heck does every word have to be strange? What now? This Doji is like my dog’s name (people laugh when I call him to come to me in the park). And this is still forex lingo……

Doji is a candle with an opening price equal to the closing price. Their bodies are extremely short. 

Ok, now the only thing we picture in our mind is this Dackel dog. His body is short, as well. We are not talking about Forex anymore, do we? 

Yes, we are. 

Doji candles are a very important signal, so it is better to take a risk than to miss it because it indicates a change of trends. 

The probability of reversal increases if the subsequent price movement is confirmed by this signal. Doji is only important in those markets where they are not common. 

Therefore, it is not recommended to use candle analysis for a graph lasting less than 30 minutes, because there are many candles on such graphs that resemble Doji.

Doji candles suggest indecision or a struggle between buyers and sellers, neither of them gains control and as a result, it was a draw. 

What is the difference between Doji and Spinning Top?

A spinning top also shows weakness in the current trend, but not necessarily a reversal. If either a doji or spinning top is spotted, you have to look to other indicators such as Bollinger Bands to determine the context to decide if they are indicative of trend neutrality or reversal.

There are FOUR special types of Doji candlesticks.

The length of the upper and lower shadows can vary and the resulting forex candlestick looks like a cross, inverted cross, or plus sign.

  1. Long-legged Diji (Rickshaw Man)

Long Legged Doji plays a very important role if it appears on top. If the opening and closing price is in the middle of the price range for the day, then such a candle is called a Rickshaw man. If the candle is not a Doji but has a very long top and/or lower shadow and a small body, it is called a “high wave”. A group of “high waves” is a signal to reverse the movement.

  1. Gravestone Doji

The Gravestone Doji is the opposite of the Dragonfly Doji. It appears when price action opens and closes at the lower end of the trading range. After the candle open, buyers were able to push the price up but by the close, they were not able to sustain the bullish momentum. At the top of a move to the upside, this is a bearish signal.

  1. 4 Price Doji:

The 4 Price Doji is simply a horizontal line with no vertical line above or below the horizontal. This Doji pattern signifies the ultimate in indecision since the high, low, open and close (all four prices represented) by the candle are the same. The 4 Price Doji is a unique pattern signifying once again indecision or an extremely quiet market.

4. Dragonfly Doji

The Dragonfly Doji can appear at either the top of an uptrend or the bottom of a downtrend and signals the potential for a change in direction. There is no line above the horizontal bar which creates a ‘T’ shape and signifies that prices did not move above the opening price. A very extended lower wick on this Doji at the bottom of a bearish move is a very bullish signal.

You should pay special attention to the preceding candlesticks before Doji in the chart. 

If a Doji appears after a series of candlesticks with long hollow bodies (like White Marubozus), the Doji signals that the buyers are becoming exhausted and weakening.

In order for the price to continue rising, more buyers are needed but there aren’t any more! Sellers are licking their chops and are looking to come in and drive the price back down.

If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak.

In order for the price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap.

These are the 3 main formations with Japanese candles. You have to learn to recognize them because they give a lot of information about the market and its movements.

Next, we will continue with specific Japanese candlestick patterns and what they are telling us.

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Japanese Candlestick Anatomy

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Single Candlestick Patterns

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