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6 Other Significant Japanese Candlesticks Other candlestick formations are very significant when they materialize in a potential reversal zone. These candlesticks provide an even stronger indication of a potential reversal when they form in a harmonic area. Doji The doji is an excellent potential reversal signal. It occurs when the open and the close are the same. Usually, the open and close are found in the middle of the price range. High Open Close Doji This price bar indicates a market that is uncertain of its future action. It is important to closely watch the price action following the formation of this price bar. This will often provide clear signals regarding the future trend of a stock.
Hammer The hammer is a price bar that has a large total range with a small difference between the open and the close. This difference should be approximately 1/3 the total range for a valid hammer. Depending on where it develops on a stock chart, there are other terms for this price bar, such as a hangman or shooting star. However, for these purposes, it is important just to recognize this as a reversal signal, especially when it forms in a potential reversal zone. Open Close Open Close Low Bullish Hammer Bearish Hammer The next illustration shows a hammer that is inverted. Again, it is important to recognize this sign as an indication of a potential reversal when it develops in a harmonic area.
High High Open Close Open Close Bullish Inverse Hammer Bearish Inverse Hammer Japanese Candlesticks clearly illustrate a stocks price action. I believe that candlesticks can indicate a great deal more about a future price action than a single, line price bar. Also, there are several combinations of candlesticks that identify critical tuming points in stock. I strongly encourage you to study this area of technical analysis. Although these are very basic illustrations and explanations of candlesticks, it is important to recognize these price bars as reversal formations in a potential reversal zone.
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