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The following is a guest post by channel trader Justin Darr.
Candlestick Patterns: Candlesticks are the representation of price and can give insights into the future direction of price by either continuation patterns or reversals. They tell much more about how the price moved compared to the traditional line charts. Candlesticks include the open, close, low, and high for the predetermined period where line charts only state the close. There are essentially two types of candlesticks, bears and bulls, with many different variations.
A Bull Candlestick closed higher than it opened and is usually green, blue, or white. The base of the candle stick or box is the open for that period and the top of box or candlestick is the close for that period. The upper wick is the high and lower wick is the low for that period.
(Example of a bull candlestick on a day period interval)
A Bear Candlestick closed lower than it opened and is usually red or black. The top of the box or candle stick shows where the price opened for that period and the base shows where the priced closed for that period. The upper wick states where the price got during that period and lower wick states how low the price got during that period.
Example of a bear candlestick on a day period interval)
Spinning Tops: These candlesticks have long upper and/or lower wicks with small boxes. The small boxes indicate little movement from open to close and upper and lower wicks shows the battle between bulls and bears, but none could gain control. If a spinning top forms on an uptrend near a channel resistance then it’s very likely that the price could fall. If it forms on a downtrend near a channel support then it is very likely that the price could rise. It does not matter if the spinning top is a bear or bull candlestick.
Dojis: These candlesticks have very close or same open and close prices meaning their boxes are almost nonexistent looking like a horizontal line. Dojis have long upper and/or lower wicks and indicates indecision between the bulls and bears. If a doji appears near a resistance this indicates that the bulls are losing steam and a possible reversal could be in the making to the downside. If it appears close to a support this could insinuate a possible reversal to the upside. There are four types of dojis.
Bullish Marubozu: This is made up of a long body with very little or no upper and lower wicks. The open price equals or is very close to the low and the close price equals or is close to the high. This candlestick is extremely bullish stating that the bulls are in control and will likely remain in control. If this candle stick appears at the bottom of a trend around a support then the trend will most likely reverse and the bulls will be in the driver seat.
Bearish Marubozu: This is made up of a long body with very little or no upper and lower wicks. However, this differs from a bullish marubozu, because the open price is very close or equals the high while the close price is equal or close to the low. This is an extremely bearish candle stick and shows that the bears were in control. If this appears near a resistance on an uptrend then it is likely that the bears will gain control and start a new downtrend.
Justin Darr has over two years experience investing and trading in equities, futures, options, commodities, and foreign exchange markets. His experience started in SMIF, LLC where he served the role as energy and consumer sector mangers. His strategy focused on investing in undervalued equities that had favorable long term economics. He currently is an independent technical trader focusing heavily in forex and commodities. He most recently worked at Eaton Partners an investment placement agency. He also serves as an instructor for EZ Trade Academy.
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