Introduction to Neutral Candlestick Patterns: Indicating Market Indecision
Regarding candlestick charting, some patterns indicate a bullish or bearish trend, and neutral patterns signal a lack of market direction. Neutral candlestick patterns are essential to technical analysis because they can help traders avoid making hasty decisions during times of market indecision. This article will discuss the most common neutral candlestick patterns, their characteristics, and how traders can use them to make informed decisions.
Doji Pattern
The doji is a neutral candlestick pattern that indicates market indecision. It occurs when a security's opening and closing prices are the same or very close to each other, resulting in a candlestick with a very small or non-existent body. The doji pattern can signal a potential reversal or continuation, depending on its location within a trend. For example, a doji that appears after a prolonged uptrend may indicate that the market is undecided about the next direction of the trend, potentially leading to a reversal.
Spinning Top Pattern
The spinning top is another neutral candlestick pattern that indicates market indecision. It occurs when a security's opening and closing prices are very close to each other, but the high and low prices have a wider range. The spinning top pattern can signal a potential reversal or continuation, depending on its location within a trend. For example, a spinning top that appears after a prolonged uptrend may indicate that the market is undecided about the next direction of the trend, potentially leading to a reversal.
Marubozu Pattern
The Marubozu is a neutral candlestick pattern that indicates a lack of market direction. It occurs when a security's candlestick has a long body with no shadows, indicating that the opening price was the same as the low price and the closing price was the same as the high price. The marubozu pattern can signal a potential reversal or continuation, depending on its location within a trend. For example, a marubozu that appears after a prolonged uptrend may indicate that the market is undecided about the next direction of the trend, potentially leading to a reversal.
Neutral Candlestick Patterns Real-life situation:
A trader notices a neutral candlestick pattern in a stock they are considering buying.
Tip: When trading a neutral candlestick pattern, it is essential to exercise caution and evaluate the overall market trend before making a trade. It is also important to wait for confirmation of the pattern before making a trade.
Knowledge Check Quiz
References:
Murphy, J. J. (1999). Technical analysis of the financial markets: a comprehensive guide to trading methods and applications. Penguin.
Bulkowski, T. N. (2005). Encyclopedia of chart patterns. John Wiley & Sons.
Kirkpatrick, C. D., & Dahlquist, J. R. (2010). Technical analysis: the complete resource for financial market technicians. FT Press.
Pring, M. J. (2014). Technical analysis explained. McGraw Hill Professional.
Nison, S. (1991). Japanese candlestick charting techniques: a contemporary guide to the ancient investment technique of the Far East. Prentice Hall.
