Candlesticks are the basics of charting and technical analysis. Most of the traders use candlesticks to analyze trading instruments such as currency pairs. There are many candlestick patterns different in formation, nature and result. Spinning tops and doji are candlestick patterns.
These are generally neutral candlestick patterns that indicate indecision between buyer and seller. The formation of spinning tops and doji patterns is almost similar.
This type of candlesticks has a small real body with long upper and lower shadow. Open and close price is close to one another but not equal. The length of upper and lower shadows is near or similar. This candlestick represents the indecision between buyer and sellers. Near or equal upper and lower shadow represent the equal amount of buying and selling pressure.
Here is a figure showing the shape of spinning tops candlestick patterns.
The spinning top candlestick pattern can identify possible trend reversal if found after a significant or prolonged trend. For example, if spinning top candlesticks found at the top of a prolonged uptrend, this indicates a possible bearish reversal.
Spinning top candlesticks after a prolonged downtrend indicates a possible upward or bullish reversal.
Here is an example chart of reversals due to spinning top candlestick patterns showed on the 4-hour chart of NZD/USD.
In the case of trading, this candlestick pattern should be combined with other indicators or charting tools. Trend lines and chart patterns work very well with candlestick patterns.
Spinning tops candlestick pattern combined with chart patterns or trend lines is a very effective price action based trading strategy.
The 4-hour chart of NZD/USD (given above) is showing spinning top candlestick patterns are found in a W pattern. The spinning top pattern is indicating a strong possibility of reversal here, with the help of W pattern. Other chart patterns like, M pattern or head and shoulders patterns are also effective for this type of trading approach.
Doji is another neutral candlestick pattern that indicates indecision between buyers and sellers. This pattern is similar to spinning top candlestick pattern. This pattern has long upper and lower shadow like spinning tops.
But the open and close price of this pattern are virtually equal this there is very little or no real body is seen in this candlestick. Here is an example of this candlestick pattern.
Doji is an important neutral candlestick that often used as reversal candlestick pattern in some cases. This pattern is useful if combined properly with trend lines or chart patterns. This candlestick pattern can play an important role in any price action based trading strategy.
4-hour chart of NZD/USD (given above) is showing the effect of doji candlestick in finding reversals. In the chart above a reversal has occurred as soon as a doji candle has hit the trend line. This trend line is heading upward indicating the presence of an uptrend and a possibility of pullback or getting support from this trend line.
At this time, a doji candlestick near this trend line after a downfall has confirmed a possible pullback. A strong bullish candle after the doji candle has provided more confirmation.
Trading forex using candlesticks only is not so easy. This requires a high level of knowledge, patience, and experience to trade with simple charts. If you find it difficult to trade with candlesticks only, then you better add other suitable tools with candlestick patterns.