Recognizing Candlestick Chart Patterns With Ease The most common and powerful candlesticks chart patterns to indicate reversals are: 1) Doji 2) Spinning tops 3) Evening and morning stars 4) Double or triple tops 5) Head and Shoulders Doji Dojis are formed when price opens and closes at the same level in a candlestick, indicating price indecision. They are most significantly seen after extended periods of rally with long bodied candles. A trader should only placed importance on doji occurring on long rallies with big moves and not on dojis found in range bounds. Spinning tops Spinning tops indicate that buyers and sellers have clear sense of what the market direction will be from the small bodied candlesticks formed. The forces of supply and demand are equally balanced and they will normally show up at the end of a long run. It is a clear sign that the current trend is running out of steam. It is also a good idea to use it in conjunction with other indicators for confirmation of trend reversal. Evening and morning stars An evening star forms when the signs of first candle showing a long bodied candlestick followed by a candlestick with short body with a long wick and lastly a long bodied candlestick in the opposite direction which covers much of the first candle length. The reversal signal will even be stronger if the second and third candle has a huge price gap. The formation of the morning star is the exact opposite of the evening star. Triple and Double Tops These two formations are very common and very powerful combinations. It occurs when price his a support/resistance level, retreats and attempt to break the level once again. The price fails and thus indicates a huge signal that the trend is reversing. Head and Shoulders This formation is similar to the triple top except that its middle peak is higher or lower than the others. It indicates a failed continuation pattern with the price failing to reach a higher high or lower low after a peak and stalls near the peak level of the first shoulder. When the price continues and breaks through the support from the first shoulder, a trend reversal is confirmed. Author: Warren Seah For more info click on Candlestick Chart Patterns
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