The FX Bootcamp Guide to Strategic and Tactical Forex Trading

REVERSAL PATTERNS

The following patterns are the most common, and powerful, indicators of a candlestick reversal:

• Doji.

• Spinning tops.

• Evening and morning stars.

• Triple or double tops.

• Crown or head and shoulders patterns.

Doji

Dojis are powerful reversal indicating candlesticks and are formed when the currency price opens and closes at the same level, implying indecision in the currency’s price. Dojis become a most significant reversal signal when seen after an extended rally of long-bodied candles.

Remember, a doji can only be a reversal pattern if there is a large move in place. If not, what exactly is it reversing then? If they are in a range bound market, they are much less important. Don’t read too much into them without big moves behind them. See Figure 12.2.

Spinning Tops

Spinning tops denote situations where the market is having difficulty coming to a consensus on a currency’s value. They portray a market in which uncertainty and indecision prevail. Neither the buyers nor the sellers have a clear sense of which direction the market will head. The forces of supply and demand are equally balanced.

FIGURE 12.2 Doji

Source: FX Bootcamp, LLC (www.fxbootcamp.com)

Like Doji, they are particularly important at the end of a long run. A spinning top is a clear sign that the powerful trend is running out of steam. See Figure 12.3.

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