Summary
Umbrella Candles, including patterns like the Hanging Man and Hammer, are essential indicators for predicting potential market reversals. This article provides an in-depth overview of these and related candlestick formations, including the Inverted Umbrella Candles (Shooting Star and Inverted Hammer), Spinning Tops, and Doji candles. Understanding these patterns can help traders recognize pivotal moments in market trends, aiding in better trading decisions.
- Umbrella Candles signal potential market reversals, with different meanings depending on chart position.
- Inverted Umbrella Candles, like the Shooting Star, suggest trend shifts when appearing after strong price movements.
- Patterns like Spinning Tops and Doji candles often indicate indecision or upcoming trend reversals.
Umbrella Candles – Hanging Man - Hammer
For the white Umbrella candle, the closing price is above the opening price, and it has a wick that is at least twice as long as the candle body.
For the black Umbrella candle, the closing price is below the opening price, and it also has a wick that is at least twice as long as the candle body.
In general, the color of the candle body is irrelevant. The unique feature of this candle is that it takes on different names and meanings depending on its position on the chart.
Interpretation
The Umbrella candle generally indicates a possible reversal. When found at the end of an uptrend, it suggests a potential shift to a bearish market, and the Umbrella candle becomes a Hanging Man.
If found at the end of a downtrend, it suggests a potential shift to a bullish market, and the Umbrella candle becomes a Hammer candle.
Inverted Umbrella Candles – Shooting Star – Inverted Hammer
For the white inverted Umbrella candle, the closing price is above the opening price, and it has an upper shadow that is at least twice as long as the candle body.
For the black inverted Umbrella candle, the closing price is below the opening price, and it also has an upper shadow that is at least twice as long as the candle body.
As with the standard Umbrella candle, the color of the body is irrelevant. The significance of this candle also varies based on its position on the chart.
Interpretation
The inverted Umbrella candle generally indicates a possible reversal. If found at the end of an uptrend, it suggests a potential shift to a bearish market, turning the inverted Umbrella candle into a Shooting Star.
If found at the end of a downtrend, it suggests a potential shift to a bullish market, transforming the inverted Umbrella candle into an Inverted Hammer.
Spinning Top
For the Spinning Top candle, the candle body must be smaller than the combined length of the upper and lower shadows. The color of the candle is not relevant; instead, its position on the chart is crucial.
Interpretation
In a sideways market, the Spinning Top candle is considered neutral. When observed after a strong price movement, it can indicate a potential trend reversal.
In the illustration above, several Spinning Tops are marked. These candles appear in areas where the market changes direction. However, there are also some Spinning Tops in the chart where the market continued its movement.
Doji
Interpretation
The Doji is regarded as neutral in a sideways market. When found after a strong movement, the Doji candle can indicate a potential trend reversal.