May 18, 2021, | AtoZ Markets – Japanese candlesticks have three basic types: the spinning top, the Marubozu, and the Doji. Let us get to know and differentiate them one by one!
The first type: the spinning top
Spinning tops have long lower and upper shadows making their real bodies small. The body's color does not matter too much. These candlesticks tell us a lot about the buyers' and seller's indecision.
The body shows minimal movements from the open to the close. The shadow tells us that the competition between the buyers and sellers is too tight. As a result, the session opened and closed with only a minimal movement, but if we looked at what happened in between, we would see that the prices moved higher and lower.
If the spinning top is formed in an uptrend, only a few buyers are left, and a reversal is possible. On the other hand, if a spinning top is formed during a downtrend, only a few sellers are left, and direction reversal may happen.
The second type: the Marubozu
A marubozu candlestick does not have shadows that extend from the body. Marubozu comes from a Japanese word that means shaved or bald head, hence the appearance of this Japanese candlestick. The high and low are similar to the open or close, depending on the color of the body. It depends if the body is hollow or filled.
A white Marubozu has a long body with no shadow and color. The open price and the low price are equal, while the close price and high price are equal. It means that the opening is its lowest price, and the closing is its highest price. It is bullish, and buyers control the whole session. It also suggests a bullish continuation or reversal.
A black Marubozu has a long and black body with no shadows. The open and high are equal, while the close and the low are equal. It means that the opening is the highest price and the closing is the lowest price. It is bearish, and sellers control the entire session. It also suggests a bearish continuation or reversal.
Marubozus are very particular with their location and color. White Marubozus formed at the end of uptrends usually have continuation, while the ones created at the end of downtrends generally have reversals. Black Marubozus formed at the end of downtrends usually have continuation, while the ones formed at the end of an uptrend usually have a reversal.
The last type: the Doji
The Doji's open and close prices are similar, or their bodies are too petite that they appear as thin lines. This candlestick shows indecision between buyers and sellers. The prices move up and down the open price during the trade. The close is near or the same as the open price. No one was able to control the session that made it a draw.
Doji are further subdivided into four types: long-legged, dragonfly, gravestone, four prices. The upper and lower shadow length varies, and the result may look like a cross, inverted cross, or a plus sign. Pay close attention to the prior candlesticks if you see a Doji in your chart.
Doji formed after a series of long and hollow-bodied candlesticks means that the buyers are getting tired as they want to keep the price rising, but the buyers are not enough, and sellers want to drive the price down. Doji formed after a series of long-filled bodied candlesticks means that the sellers are getting tired. They want the price to continue falling, but the sellers are not enough, and the buyers want to pay cheap. A reversal confirmation needs for more buying strength.
To cap it off
These three are here to help every trader make sound and better trading decisions. Let us give thanks to Mr. Steve Nison for taking an interest in Japanese candlesticks and sharing them with the world!