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CANDLESTICK CHARTING

This lesson we will continue with basic

candles.

Once we complete our overview of the basic

candles, we will group them in patterns.

They will be identified as single candle

patterns, two candle patterns, and three

candle patterns. In each of these groups,

we will further identify bullish and bearish

candles and their meaning.

DOJI

One of the most popular candles, the doji

is shaped like a cross. This means it has a

shadow but no real body (or very little).

The picture of a doji tells us by simply

looking at it that the struggle between the

bulls and bears (or supply and demand)

is an equal struggle, and there is no winner

once the candle has completed.

Because a doji is considered a non-decisive

candle, it should be viewed as a possible

reversal point, especially when it appears

in either an overbought or oversold position

on a chart. The next candle in the sequence

should be carefully watched to see if the

reversal continues. The doji pictured

represents a textbook doji with no body.

There are some doji candles that will

display a very small body, and while they

are classified as doji candles, they do have

a story to tell. We will look at these later

in this lesson. In all, there are actually five

different doji candles.

LONG LEGGED DOJI

Taking the doji candle a step further, we

realize that there is more of a story to the

doji than just a case of the opening and

closing being the same. Doji candles come

with both long and short shadows, which

can signal the power struggle that was

evident while the candle was being formed.

The doji with a long shadow appearing at

the top of a move indicates that the bulls

tried unsuccessfully to drive prices higher

into new high territory but failed to sustain

the move. This is a signal that the resistance

was met with much selling, and a possible

top is imminent. Likewise, if the long shadow

doji appears at the bottom of a move, it

tells me that the bears tried to push prices

well into new low territory but the result

was strong buying coming in to offset the

sellers. Again, this would be a potential sign

that a reversal is looming. Either way, the doji

is doing its job by warning the analyst that

caution should be taken, and that a reversal

is very possible in the next few sessions.

Notice the long legged doji candles pictured;

in each case, there was a minor difference

in the close of each. The first image is a

textbook doji with the same opening and

ONTARIO GRAIN FARMER

9

JANUARY 2018

Lesson Definitions:

Candlestick lines:

a traditional Japanese chart which consists of a real body, representing the open

and close, and upper and lower shadows, representing the high and low of the day.

Doji:

forms when a candle’s open and close are virtually equal. The length of the upper and lower shadows

can vary, and the resulting candlestick looks like either a cross, inverted cross, or plus sign. Doji convey

a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening

level during the session, but close at or near the opening level.

closing price. The black or solid candle

beside it is also a long legged doji, but the

solid colour suggests that it closed lower

than it opened (although by a very small

margin). The third image is also a long

legged doji, but in this case the closing was

ever so slightly higher than the opening.

Although they can all be classified as

textbook doji candles, the candles on the

right show that the close and open were

not identical. This may also have some

impact on the outcome of the next series

of candles.

In our next lesson, we will discuss the other

three doji candles and their meaning and

importance.

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This monthly educational series features the basic workings of the futures and options

markets and how they can be utilized to help farmers with risk management.

Marty Hibbs,

Grain Farmers of Ontario

Futures trading basics

LESSON 33: TECHNICAL ANALYSIS

Marty Hibbs is a 25 year veteran futures trader, analyst, and

portfolio manager. Hibbs was a regular guest analyst on BNN

for four years. He is currently a grain merchandiser with

Grain Farmers of Ontario.

DISCLAIMER: This information has been compiled from sources

believed to be reliable, but no representation or warranty,

express or implied, is made by the author, by Grain Farmers of

Ontario, or by any other person as to its accuracy, completeness

or correctness and Grain Farmers of Ontario accepts no

liability whatsoever for any loss arising from any use of same.

LEFT: DOJI. RIGHT: LONG LEGGED DOJI.