All About Candle Hammer, Doji, and Marubozu
1. Hammer
The Hammer pattern appears when the price is in a down trend. Shaped like a hammer. Many people judge that the Hammer has a low level of accuracy. But the candle can still signal a change in market strength before the direction of the trend changes.
When the price falls, the hammer signals that the price opens and closes at adjacent levels. The long wick below indicates strong Seller pressure. But Buyers remain dominant because the closing price is above the opening price. This is what causes the Hammer pattern.
Hammer accuracy criteria:
* The length of the lower wick is about 2-3x the candle body.
* No top or little wick.
* Body is at the top of the range.
After ascertaining the level of validity, we can use other technical analysis methods to look for entry clues or confirmers.
2. Doji
Doji is used to find out trend reversal information. A doji is formed when the open and close prices are almost the same for a certain period of time. Meanwhile, if the opening and closing prices are the same, it is considered stronger.
The shape of the Doji resembles a cross, inverted cross, or plus sign. The length of the upper and lower axes also varies. In general, the Doji represents indecision in the market but can also be an indication of a slowdown in the existing trend momentum.
Dojis have 3 main types of candles;
a. Long-legged Doji
b. Dragonfly Doji
c. Gravestone Doji
a. Long-legged Doji
A long legged Doji is a candlestick consisting of a long
upper and lower shadow. This pattern has more or less the same opening and
closing.
This type of Doji will indicate indecision that occurs after a strong increase or decrease in the market. This pattern also does not always mark the end of a trend, but can also mark the beginning of a period of consolidation.
A long legged
Doji is a candle that is considered the most significant when an up or down trend is strengthening. For example, when the trend is on the rise, the price of an asset will be pushed higher and the close for most of the period will be above the open.
b. Dragonfly Doji
Dragonfly Doji is a candle that signals that there will be a potential downward or upward reversal. This pattern is formed at the highest opening and closing prices of the same day. Meanwhile, the lowest price is quite far from the opening price. This type of doji is formed when the market is bearish.
c. Gravest
Gravestone, where the price opened at a low position and had time to rise and then fall back to the low position in its original place at the time of closing so that a tail is formed extending upwards.
Gravestone as the name implies, which means tombstones give
the meaning of death, or in the world of the market there will be a decline in
price (bearish) from the previous which tends to rise. Gravestone pattern which
is preceded by an uptrend there will be a reversal that will lead to bearish or
a decline in the future.
How to Read Doji Candle
- Highest Price
When the price is high, it will form an wick above the body of the candle. If the highest price opening occurs in the time frame, there will be no tail above.
- Open Price
The open represents the first price traded within a certain timeframe. This is indicated by the top or bottom of the candle body. If there is an uptrend, the candle will be green. Conversely, if there is a downtrend, the candle will be red.
- Lowest Price
The lowest price in a certain time period will be shown by the axis below the body, this is called the lower tail. If the open price is the lowest price there will be no lower tail.
- Latest Price
The latest price is the last or latest price traded in a certain period of time. The current price forms a body of the candle.
If the price is low or high, a shadow will form on the candlestick. The length of a shadow that determines how strong one of the Buyers and Sellers is trying to push the price. If the lower shadow is long, it means that the seller is trying to drop the price. Meanwhile, if the upper shadow is long, buyers are trying to increase the price.
3. Marubozu
Marubozu is a 1 color signal candle with no wick. This represents a strong buy or sell force emerging in the market.
Marubozu candles are also closely related to trends. Basically, a white candle is bullish, because it is a buyer candle. If White Marubozu appears on the chart, it could mean that the bullish trend will continue to rise or it will be a bullish reversal. Likewise with the Black Marubozu candle. Usually, Marubozu is observed together with Doji to see market sentiment.
How to implement Marubozu in trading strategy:
1. Traders are looking for good entry opportunities and minimal risk.
2. After seeing Marubozu, traders can create simple trading strategies
When Marubozu appears, traders need to consider the market context in which Marubozu exists. Then, traders need to observe where the close price is on the Marubozu candle, is it located on the Support or Resistance line?
If the candle breaks through Support or Resistance, then we
can use a pending order limit, to enter the market at a retracement price that
returns to near the Support and resistance levels. Do not forget to place a stop-loss
in the area opposite to our transaction. However, if the candle does not break
through Support or Resistance, it is likely that the candle will reverse high.
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