Which of these candles is more likely to signal a reversal?

Suppose the market is trending upwards, and then one of these two candlesticks occurs:



As I'm sure you've noticed, Candlestick B is a 'Doji' candlestick, which is an infamous signal for a potential trend reversal, among traders who look at price action. The logic behind the Doji candlestick is simple - it indicates that there is indecision in the market, and therefore that the current trend has potential to end. So if Candlestick B were to occur in an uptrend, it may signal that this trend could end.

Conversely, Candlestick B is not a know reversal indicator. However, it indicates that, not only was there indecision about the direction of the current uptrend, but there was also more sellers than buyers in this period. Surely this is more of a bearish sign than a doji? If so, why are we told that the doji is a reversal signal, and that this candlestick is not? If not, why not?

Thanks in advance.

Both of those will leave you with empty pockets. Throw a longgggggg tail on either one of those in that cute drawing and you have a better chance at reversal and swollen pockets. More data needed though for better %
Oh, The answer to your question. Anything you are told when it comes to making money and trading is 99% useless. Extract the 1%

Thanks for the clarification. By the way, for a newbie like me, can you suggest me any system to have my pocket a bit swollen?

You really need to start making your own observations. A single candle in a "vacuum" with no context means absolutely NOTHING. Start learning to understand what causes price to move... I can give you a hint... It not price candles. Learn to understand the structure of the market. Through the following lenses. Time, volume, open interest... Then you will see that price is the end result not the cause of the cute little patterns you keep asking about,. They are meaningless!

I think doji candle can be just as much continuation as reversal. No one knows if the bulls or the bears are going to come out victorious until it happens.
Doji means price is likely to either reverse or continue? Gee, that information is about as useless as tits on a bull?
Well, it may be useful, as once the battle has been won price will usually continue to the next battle zone (support/resistance).
I'd be inclined to put a stop buy just above the high of the Doji and a stop sell just below the low.
But I don't trade them because I haven't analyzed the data around the success rate of those trades.

The answer is technical analysis. Do it with some chart part not with the single candlestick. And about profitable system... so much info about that! Read books, look for it in here, google it at list and use demo acc for a first time. Then I believe you'll find your own way. Good luck!

Your candle A is shaded; does that mean green or red / bullish or bearish? Anyhow, answer is neither. What sort of timeframe are you looking at? The smaller the timeframe, the less significant. However, if that was a doji on the monthly bouncing off a major resistance level, then it is a different story. Candlestick patterns are only valid in context.

I think there is still something good the Doji candlestick, but we should note that this candlestick pattern opening and closing are at the same or nearly the same price.
And because Dojis are found in a large number of reversal patterns, traders automatically think that the single doji is a reversal candlestick. But in fact, the doji by itself represents indecision ( where you will never be able to tell the future, but could rely on some analysis). in the marketplace.
Ideally, you want to find a doji that has formed near a level of support like a trend line. You want to identify the doji high and the doji low as this will determine the support and resistance levels of a potential breakout.
Next, you want to wait for a full-bodied candle to close either above the doji high or below the doji low. Since bulls and bears have been at a standstill, a high volatility breakout should happen releasing this pent up pressure.
I think we should read more on this Dji candlestick, it has a lot to offer.

Thanks for the reiteration Brill.

The ones that happen during london open / red news or any other times when volatility is higher ...

I's like to say that you are too focused right now on a particluar candlestick or small cluster of of candles. I would say that there is some candlestick patterns that are MUCH easier to recconize, however, the quality of the signal they represnt is not always so easy to determin.
Knowing your Candlestick patterns is a great first step, they might help draw your attention to something hapening. But once you feel you have identified a pattern, your next step should be to take a step back and look at the whole picture. Where is this pattern in relation to the support and resistence zones, how does this pattern relate to any of the technial indicators that you are using, and what is the overall trend of the market. Ofcourse, also knowing what is on the economic calender is very useful and could maybe help you miss a blunder if something major is coming out that day.

I like to think about trading as being a Judge. You job is to find enough evidence to support your decision. Your decision might be a great one or it might be a bad one. But if you did your homework, and you keep your notes, you will become a better trader. For example, You notice a doji at the top of an uptread, then you see a hanging man the next day followed by a dark cloud cover. This is alot of signals tell you something is happening. But what is your indicators says? Does Stochastics meet the criteria to make this trade? What is MacD or Bollinger looking like? Where is the support and resistence zone? In a perfect world, all of these chart patterns were occuring at the resistance zone, then you had your dark cloud cover confirmed, and you have MACD and Stocastics giving you a sell signal, this might be enough support to make this trade.
Now if that trade works, great, you have tons of reasons why you got in and this will help boost your confidence in trading, however, if this trade didnt work, you have something to go back on and look at. You know why you made the trade, you had god solid reasons, not a hunch. As long as you used proper risk management strategy, you will leive to make your next trade.

If you are looking to expand your situational awareness, a great free ressource for the basics would be www.babypips.com, also, a book from Steve Nison 'Japanese Candlestick Charting Techniques, 2nd Ed., althought not free, is an great book on this subject. Another very good take on the subject could be found in an artice in the January 2015 Technical Analysis of Stocks and Commodities magazine titled "Reconizing Patterns & Relations in Candlesticks", by Martha Stokes, CMT. Although her example is looking at a stock chart, the application can easily be moved to Forex. In her article, she gives very good analysis of using not only chart patterns, but also encorporating the total enviorment into your analysis. It is a very good read and not too complex.

I hope that this helps, I am a strong user of Chart Patterns, but it is just one tool out of several that I use to make my trades.

Happy trading and good luck!

Patrick

Which of these candles is more likely to signal a reversal?

I would argue neither.

Let's start at the beginning. What you have shown here are simply two Candlestick Lines. A Candlestick Line is simply what is created at the end of a particular observation window. In other words, if you are looking at a 3 minute chart, a Candlestick line is created every 3 minutes. If you are looking at 240 tick chart, a Candlestick line is created every 240 ticks of price.

Using a Candlestick Line as the basis of a reversal signal is very low probability. Many a failed price action trader will see Hammer (candlestick line) or a Doji (candlestick line) and think, "time to get short (or long) on this reversal signal". Only to have his head handed to him by the market.

Stronger reversal (or continuation) signals almost always occur when certain Candlestick lines traverse into Candlestick Patterns.

That is not to say that all Candlestick Patterns always work. Nor is to say that all Candlestick Patterns are created equal. It is to say, that the probability of a reversal (or continuation) increases when a "reversal (or continuation)" Candlestick line becomes a valid Candlestick pattern. I would also add that WHERE the Candlestick line traverses into a valid Candlestick Patterns matters as well.

You knew it was coming. The WHAT you want to see, is the Candlestick line traversing into a valid Candlestick pattern. The WHERE you want to see it, is in an open Supply/Demand Delta Zone.


Candlestick patterns involve more than one Candlestick line. Some involve Candlestick line that occur after the "key" Candlestick line.

Take a look at the first chart below.

We see a Dark (Open>Close) Hammer line. Many would want to simply get long. The charts are littered with Dark Hammer lines. Getting long at most is not actually a good idea. What is a good idea, is waiting for the higher probability occurrences when the Dark Hammer line traverses into a valid Dark Hammer Pattern. Note that in this particular valid Dark Hammer Pattern, the candlestick line after the Dark Hammer is important.

Take a look at the second chart below.

This actually the same chart at the previous one. In this chart I am showing a valid Confirmation Entry pattern (CE). The Bullish Dark Hammer pattern falls under the broader "umbrella" CE pattern. But the point is this: the Dark Hammer is but a single candlestick line in series of candlestick lines that together create a high probability Candlestick pattern.

Take a look at the third chart below.

Here again, we have a valid Bullish Dark Hammer pattern being shown as valid long CE. It should be clear that what happens prior to the Hammer line and after the Hammer line are important. Simply, we can not take the Dark Hammer Candlestick line in isolation.

In you image you showed a Doji candlestick line. If we substitute the Doji for the Dark Hammer, we would have a Valid Bullish High Close Doji Pattern. Most of the higher probability Doji Candlestick patterns require something specific in the Candlestick line after the Doji itself. So your image of a Doji Candlestick line does not take into account the Candlestick lines leading up to the Doji, nor does it take into account the Candlestick line(s) after.

The importance of a Long Shadow:

This was touched on by another poster, but I wanted to mention it a little more precisely. While the definition of a Long Shadow can vary, I prefer to think of a Long Shadow : (1) as being larger than the shadows of the previous three intervals. If we are looking at the Lower Shadow, than we would be comparing Lower Shadows to Lower Shadows. (2) the Long Shadow would be larger than the Body(Open to Close) of the previous three candlestick lines. (3) The Long Shadow would be greater than both its own interval's Body and Upper Shadow.

If you take a look at the charts again, you will see that all of the Dark Hammer Lines have Long Lower Shadows.

Japanese Candlestick trading:

One of the keys to trading Candlesticks is to move away from the Candlestick line to the notion of the Candlestick pattern. Most people that say "candles don't work", will point to countless random Hammers or Dojis for proof. I would agree that trading random Candlestick lines does not work. However, if you learn to trade Hammer or Doji Candlestick lines that have traversed into valid Candlestick patterns, the odds increase. On any time frame one wants to trade.

But that is not all. One needs to have an idea of WHERE he would like to see these patterns on the chart. One needs to understand the price action prior to the Candlestick pattern signal. Some may want to go a step further and delve into an understanding of the news events that are creating the candlestick pattern signal. Or the "seasonal" effects that may be involved.

I prefer the B, but the better signal from my naked trading experience is shooting star. Exhausted trend. You can see in GU.

As far as I know, the pattern of a trend reversal - a candle, which the shadow is much longer than the body, with it, the shadow is usually more than one way, and in another less. And there is a reversal in the direction of where the shadow less, or it does not.

Agree with HG. Candlesticks by themselves without context are poor trade signals. This weekly chart shows a long bearish body. These long bodies (larger than previous 3 or 4 candles) create support/resistance on their own. In this case support. You can see in this case price tested 100% of the low but closed well within the body of the candle.

The daily chart shows a doji at weekly support as described above. In this case the doji provided a low risk buy. It occurred in the perfect spot. At least according to my criteria.

The spinning tops revealed lack of bull interest finally followed by a confirmatory long body bear candle closing below support. The long body bull candle below was the perfect target.

Excuse me for correcting you, but I believe I am 100% right.
Both candles are spinning tops or bottoms, the B candle is not a Doji,
it is also a spinning top/bottom, Doji's only have 1 wick and are very! small,
these candles mean indecision and do not mean the market will reverse.

Both are indecision candles, not so strong indicators of reversals.

Like it name says, 'indecision' candles show no love for either bull or bear. Market just can't decide.

If there's anything that would be truly worth noticing, that would be huge hammer and shooting star candles that form swing lows and highs, respectively. It would be easy to pick out the ones that obviously stand out compared to the candles around it.

Candlestick B. But dont bet on it. You need the whole picture for it to be useful.