a. How to recognise it?
- There must be a preceding downtrend.
- It looks like a "T".
- The opening, highest and closing price are the same.
- It has no real body but a long lower shadow.
b. What is the psychology behind?
- When the market opens, the bears drag the price all the way down, resulting in a long lower shadow.
- The bulls fight strongly and eventually manage to push the price back up to the opening level.
- The longer the lower shadow, the more effective he bullish signal. It tells us that the bulls are strong enough to conquer the bears who once dragged the price so low.
c. How do we trade it?
- Look for the Dragonfly Doji at the bottom of a downtrend.
- Wait for the next candle to close above the high of the Dragonfly Doji to confirm the existence of bullish force.
- Open a stop-loss below the low of the Dragonfly Doji.
Hammer (Bullish)
a. How to recognise it?
- There must be a preceding downtrend.
- It looks like a square lollipop with a long stick.
- The closing price is above or near the opening price, forming a tiny body.
- The real body could be green or red.
- It has no or little upper shadow.
- The lower shadow is at least twice the length of the real body.
b. What is the psychology behind?
- Similarly to Dragonfly Doji, when the market opens, the bears drag the price all the way down, resulting in a long lower shadow.
- The bulls fight strongly and conquer the bears by pushing the price above or near the opening level, forming a little square body.
- The longer the lower shadow, the more effective the bullish signal. It tells us that the bulls are strong enough to conquer the bears who once dragged the price so low.
c. How do we trade it?
- Look for the Hammer at the bottom of a downtrend.
- Wait for the next candle to close above the high of the Hammer to confirm the existence of bullish force.
- Open a long position upon confirmation.
- Place a stop-loss below the low of the Hammer.
Gravestone Doji (Bearish)
a. How to recognise it?
- The must be a preceding uptrend.
- It looks like an inverted "T" letter.
- The opening, lowest and closing price are the same.
- It has no real body but a long upper shadow.
b. What is the psychology behind?
- When the market opens, the bulls push the price all the way up, resulting in a long upper shadow.
- The bears fight strongly and eventually manage to drag the price back down to the opening level.
- The longer the upper shadow, the more effective the bearish signal. It tells us that the bears are strong enough to conquer the bulls who once drove the price so high.
c. How do we trade it?
- Look for the Gravestone Doji at the top of an uptrend. Wait for the next candle to close below the low of the Gravestone Doji to confirm the existence of bearish force.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the Gravestone Doji.
Shooting Star (Bearish)
a. How to recognise it?
- The must be a preceding uptrend.
- It looks like a flying meteor carrying a long tail.
- The closing price is below or near the opening price, forming a tiny body.
- The real body could be green or red.
- It has no or little lower shadow.
- The upper shadow is at least twice of the length of the real body.
b. What is the psychology behind?
- Similarly to Gravestone Doji, when the market opens, the bulls push the price all the way up, resulting in a long upper shadow.
- The bears fight strongly and eventually manage to drag the price back down to the opening level, forming a little square body.
- The longer the upper shadow, the more effective the bearish signal. It tells us that the bears are strong enough to conquer the bulls who once drove the price so high.
c. How do we trade it?
- Look for the Shooting Star at the top of an uptrend. Wait for the next candle to close below the low of the Shooting Star to confirm the existence of bearish force.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the Shooting Star.
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