The best thing for a trader to play in the market is with the trend. They make money with the flow of trend. So what I thought of doing. It looks pretty easy if I say to enter the market when the trend seems to start and exit when it ends.
But who is going to say that when will the trend start or end?
And whether you are a beginner or trading from a long time it has always been the most critical as well as a tedious job to find the exact time of a trend.
The best practice that experts suggest is to re-confirm your prediction in all possible ways before you take any action, otherwise market can show its most weird reaction.
This is where candlesticks and technical indicators can help you to analyze and come to a near point of a trend.
So analyzing trend and then relaxing back on your seat thinking you made a perfect entry won’t help you if you neglect the signals that when your trend is going to end.
You can check trend reversal from spinning top candlestick pattern.
But as said earlier you cannot rely on a single source of information and you need to reconfirm your predictions.
Here I will show how Doji candlestick can save you by helping you to identify termination of your trend.
Without wasting your time in other technicalities I will directly switch to the physical appearance and interpretation of this candlestick pattern.
So basically this is how a Doji candlestick looks like
And I guess you noticed, it does not have a body like any other candlestick.
So typically to identify Doji you need two things
- No Body
- Long shadow.
What does it convey
The key interpretation involves the indication of an end of your trend.
Yes, your trend is going to end, but what happened in the market that such a candle formed and trend got terminated.
If you observe the open and close price remains same in such candle. This is the key feature that needs to be focused. The buyers and sellers really had a tough fight but both failed to dominate the market.
The orders by sellers were fulfilled by buyers and so did the sellers with orders of buyers. This you can see in below image how the struggle was carried out.
As you can see how buyers, as well as sellers, are trying to dominate but both seem to be very active and trying to drive the market in their direction. But an indecision is formed in the market and Doji candlestick helps us to identify this. The other two types (Gravestone and dragonfly) of Doji also reflect the same story.
So ultimately both buyers and sellers seem to be aggressive here and regardless of each of their’s effort to drive the market in their favor, the other one nullifies the effort.
Key elements to remember:
- Time has come when the trend will end up soon.
- There is no defined domination in the market.
- Buyers and sellers end up forming indecision in the market
- Open and close price remains same
But this type of sentiment where market becomes neutral and buyers and sellers both meet up on the same page cannot give an interpretation of market trend alone.
You need to follow up the previous candles. This is elaborated further.
Whatever may be the case the final interpretation depends on what happened in past. You cannot predict future unless you analyze its past.
Here basically 2 things can happen.
When the market history shows downtrend: Uptrend indication
When you find that the previous 5-6 session reflecting the bearish mode of the market and suddenly a Doji appear that may of any of the three types. It’s a clear signal that the downtrend will not last long. The buyers are showing resistance and filling up the orders made by the sellers. So the buyers here are now optimistic and won’t let the sellers further to drive the market.
Let’s explore few cases:
When the market history shows uptrend: Downtrend indication
You can also find a Doji after continuous 5-6 sessions of the market that reflected the bullish behavior. And again a Doji will assure you that sellers are active in the market and are going to book their profit here. Sellers taking an exit from the market and driving the trend in the downward direction.
Find out some real case below
So you can see how trend reversal signs through candlestick can make you win the market. Analyze the previous chart patterns and train your eyes to quickly identify such trend reversal so that you can pump up your profit.
Identifying Doji can help you analyze the reversal that may come in the trend. It has the potential to signify the weakness of price and direction and how resistance is building up in the current trend. Observe the market carefully. Each candle tries to communicate something about the market.