One pattern that traders frequently look for is a candlestick reversal pattern. You may already know that a reversal indicates a sudden change in the market direction. For example, a bullish reversal means that the market may move up from a down trend while a bearish reversal indicates that the market is shifting down from an up trend.
A one-day reversal is usually a signal that the general direction of the market for that day is changing. While one-day reversals are significant to traders for short term trading, they know this pattern can also be the starting point of a more long term market reversal.
When a doji appears on a chart, it usually means the opening and closing prices of the candlestick were identical. This means that the market reached the end of the trend and temporarily balanced. Usually, the markets tend to reverse after a doji appears, although significant market pressure on one side may postpone the reversal briefly.
There are many variations of the doji. For example, the long-legged doji has long upper and lower shadows that show the level of trader indecision in the market.
When a doji appears midway through an up or down trend, the pattern is called a rickshaw man. Often, the appearance of this doji means that the trend is about to reverse suddenly.
A doji may also appear with other patterns that indicate reversal trends in the market. Whenever a doji appears, traders should watch the market and prepare for a reversal.