29. How to Trade Spinning Tops and Doji Candlestick Patterns

http://www.informedtrades.com/
A lesson on how to trade the Spinning top and Doji Candle Stick Chart Patterns for traders of the stock, futures, and forex markets.


In our last lesson we learned how different candlestick formations can tell us different things about whether the buyers or the sellers won out in a particular time period. In today's lesson we are going to look at some of the basic candlestick patterns and what they mean when looked at in the context of recent price action in the market.

The Spinning Top

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When a candlestick with a short body in the middle of two long wicks forms in the market this is indicative of a situation where neither the buyers nor the sellers have won for that time period as the market has closed relatively unchanged from where it opened. The upper and lower long wicks however tell us that both the buyers and the sellers had the upper hand at some point during the time period the candle represents. When you see this type of candlestick form after a runup or run down in the market it can be an indication of a pending reversal as the indescision in the market is representative of the buyers loosing momentum when this occurs after an uptrend and the sellers loosing momentum after a downtrend.

The Doji

Like the Spinning Top the Doji Represents indecision in the market but is normally considered a stronger signal because unlike the spinning top the open and the close that form the Doji Candle are at the same level. If a Doji forms in sideways market action this is not significant as the sideways market action is already indicative of indecision in the market. If the Doji forms in an uptrend or downtrend this is normally seen as significant as this is a signal that the buyers are loosing conviction when formed in an uptrend and a signal that sellers are loosing conviction if seen in a downtrend. Most traders will place greater significance on the Doji when it forms in a market that is in overbought or oversold territory.

The Bullish Engulfing Pattern

The Bullish Engulfing pattern is another candlestick formation which represents a potential reversal in the market when seen in a downtrend. The pattern is made up of a white and black candle where the latest candle (the white candle) opens lower than the previous candle's (the black candle) close and closes higher than the previous candle's open. When this happens the current period's white candle completely engulfs the previous period's black candle.

When thinking about this from a buyer/seller perspective, you can understand that the long body of the current candle engulfing completely the body of the previous candle to the upside is representative that the buyers have not only taken control but have taken control with force. When this white engulfing candle occurs after a small black candle the formation is given even more significance as the small black candle is already indicative of a trend that is running low on steam.
The Bullish Engulfing Pattern


The same things apply when the pattern forms in an uptrend simply in reverse as shown in the image above.

That completes our lesson for today. In our next lesson we are going to look at several more candlestick formation and how traders use these in their trading so we hope to see you in that lesson. As always if you have any questions or comments please feel free to leave them in the comments section below, and have a great day!

Category:

Howto & Style

Tags:

• howto
• trade
• candlestick
• charts
• doji
• spinningtop
• daytrade
• investing
• money
• forex
• futures
• stock
• market
• informedtrades

[wojtek0000]

would be nice if you followed up your title with part 2 of the first video. makes it hard to find.

[InformedTrades]

all my videos are ordered by number if you visit my channel. Best Regards, Dave

[AM2M]

Wow, thanks

[InformedTrades]

My pleasure AM2M thanks for the comment. Best Regards, Dave

[tarikdigital]

Is the "candlestick" still called a "doji" if it does not have a wick, and opens and closes at exactly the same price? What is the implication of this type of candlestick?

[InformedTrades]

Hi Tarikdigital, I personally would not place much emphasis on a candle that opens and closes at the same level and does not have an upper and lower wick. The reasoning here is that the doji is meant to represent the battle between buyers and sellers as both try to drive prices in their direction (forming the wicks) but neither succeeds (forming the small body). If there is just a small body this to me would normally mean more that nothing was really happening during that candle. Best, Dave

[rajapakistannni]

very clear sound and voice,excellent way to

learn traders.

thank you

[onkar2510]

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[rennaemeow]

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[saweaq1]

great video thank David

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[DayTradersWin]

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[ssthao]

Thank you so much for the all your videos. They're very helpful and educational. What's the different between green and red doji? When I see red doji, the stock goes down the following days but I one of my stock is forming a green doji, should I sell it?