The Power of Long Doji Candlesticks

Candlesticks are powerful!  We can read a lot into what the crowd is thinking just be looking at  where a candlestick forms and what it looks like.  One of the the candlesticks that can tell us a lot about interest, buying or selling, is a doji.  But there are ones that don't tell us a lot and others that tell us loads.

1.  Neutral Dojis
2.  Long tailed dojis

A neutral doji is just that neutral.  It does not tell us one way or the other who is winning for the day buyers or sellers.  What it comes down to is that there is a price stalemate and they will resume the battle the next day.

These are pretty common and really don't tell us what direction the stock is going in.

A neutral doji looks like this and are common on charts.


 Long tailed doji's or hammers give us a lot more information as to if the buyers or sellers/bulls or bears are taking control of not only the day but even the future control of the trend.

Long tailed dojis have generally 3 looks


Inverted Hammer

The inverted hammer tells us that during the day the bulls were able to control it so much so it hit a high, but it was the bears that put the pressure on and that is why it has a long tail.  These are usually bearish especially at the top of trends or around resistance.

In the example below AIG hit resistance or a top and when that long tail shoots up it usually means that the bears are taking control and the trend can reverse.



Hammers

Hammers are usually a bullish candlestick.  The overall direction of the market is bearish, characterized by a downtrend. Then the market opens with a sharp sell off implying the continuation of the downtrend. However, prices suddenly turn upwards, the sell-off is quickly abated and bullish sentiment continues during the day with a closing price at or near to its high for the day which causes the long lower shadow. Apparently the market fails to continue in the selling side. 

Finding these at support are like finding gems on the ground because they have a strong likelihood of reversing.

Verizon recently came down to a support zone and formed a very long hammer.  The longer the tail insures a higher likelihood of reversal.



Cross Dojis

These doji's are also referred to as long legged doji's.  What is important about this one is that it forms at a top or a bottom.  The reliability factor goes up when long legged doji's hit resistance or support and that is where they can be used to predict direction.


Conclusion

The biggest thing to takeaway from these type of candlesticks is that longer is better.  It usually means that one side, the bulls or bears, have shifted the momentum in a major way.  If these shifts happen at the bottom or the top of trends it offers a short term trader and a low risk entry.