So I am going to through the school now and trying to [B]really[/B] understand basic technical analysis stuff.
No matter how often I reread the explanation of doji, Hammer, Hanging Man, Inverted Hammer and Shooting Star, they all kinda seem the same to me. I feel that they all can be summarized as follows:
doji, Hammer, Hanging Man, Inverted Hammer and Shooting Star (and even spinning tops) are patterns that could indicate a trend reversal. When you notice them see if you can find other indicators that confirm the trend reversal…
Is that about right?
Also there are four types of doji - do they all have the same meaning?
How important are candle stick patterns in your opinion?
Hello toshicg!
As Ilya Spivak says in this video, when doing technical analysis we should not get too fixated on names and perfect matches to theoretical shapes, but rather concentrate on what the candles and patterns are trying to tell us: a candle by itself can forewarn of a trend reversal but its significance may better be confirmed with, say, RSI divergence and fundamentals.
Watch Ilya’s video here:YouTube
Cheers.
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As pipmehappy already said, you should be concentrating more on the information that all of these candlesticks can give you, instead of just blindly buying/selling whenever you see one.
By definition doji just shows that market is neutral. It shows indecision between the bulls and bears and it is telling you that market can go either way.
Quite the opposite are the hammer and shooting star candlesticks. Whenever you see a hammer it shows that there is enormous buying power coming in at this level. Think about it - as the session started it was a complete bear market, price easily made a new low, suddenly bulls stepped in and started to buy, pushing price all the way up. Thereby it is a strong reversal signal.
The same goes for shooting star, only this time in an uptrend. It was a bull market, price made a new high, bears started to sell and pushed the price lower.
As for the inverted hammer and hanging man, I wouldn’t recommend trading these candlesticks. I believe they are more of continuation signals then reversals.
A Doji or any other candle stick formation is useless unless you have already determined the direction of the major trend. Trend is like the flow of traffic and then the candlesticks Doji, Harami’s, etc are like the traffic signs that instruct the people driving in the traffic.
Thanks guys, your input makes things much clearer!
I also feel like I learned a lot from Ilya’s video, thanks for sharing it PipMeHappy!
They are about the same, the inverted hammer and hangingman are just noob names for shooting star wich is the correct name, dojis are tiny, can be a very small spinning top look alike, or even tiny hammers or shooting stars, mostly you see them in tight consolidation, what they mean is generally that price is clamed in right beteen a support and resistance area, if the candle was very long( not a doji) it would have much more meaning, indicating there would be large volume selling or buying, a spinning top is when price open and close at the same place more or less and have long shadows on each side. but be advised that none of those candles would matter the least if there is mega pressure in the market, price will just blow right through them, if banks decided to sell they won’t hold up. so don’t only use candlesticks for entering the market, you would also look for a brakeout in conjunction with some other indicators
Hello toshicg,
I just saw this brief article, which you may find useful:
The Most Important Price Action Formation is Indecision | DailyFX
Enjoy.