The final and last kind of Japanese candlestick formation is the doji or sometimes called doji star.  Dojis fall into a group all of their own and offer the least more powerful confirmation of a potential change in trend.  They can be used at both tops and bottoms of price swings. They typically consist of the following characteristics:

• The open and close of the candle is the same or almost the same.
• The importance of doji is only significant on charts where there are few doji. The more doji there are on a chart the less significance they have.
• While they can be useful for calling both tops and bottoms, they are more useful at tops.

Doji candles show that the market is currently exhausted and has temporarily lost its sense of direction.

Perhaps the best use of doji candles is to warn that a current move may be coming to an end or be exhausted and a trader may consider tightening his stops or closing out positions.

Like bullish engulfing patterns, bearish engulfing patterns fall into what is possibly the third most powerful kind of Japanese candlestick patterns.  Again, these patterns offer less confirmation of a potential change in trend and should be used with caution.  They typically have the following characteristics:

• Their real body must engulf the previous candles real body.
• The real body should be the opposite colour of the previous candle.
• If the previous candle’s real body is very small and the bearish engulfing candle’s real body is very large, the stronger the formation.

Bearish engulfing patterns show that the sellers overcame buyers and this can be seen by the candlestick completely
engulfing the previous candlestick body.

It is recommended that you wait for confirmation before entering a trade based solely on a bearish engulfing pattern.

The third kind of Japanese candlestick formations are bullish engulfing patterns.  These patterns offer much less strength than the pin bar, hanging man and inverted hammer, but they can still offer some insight into potential future market movement.   Typically have the following characteristics:

• Their real body must engulf the previous candles real body.
• The real body should be the opposite colour of the previous candle.
• If the previous candle’s real body is very small and the bullish engulfing candle’s real body is very large, the stronger the formation.

Bullish engulfing patterns show that the buyers overcame sellers and this can be seen by the candlestick completely engulfing the previous candlestick body.

Due to them offering less reliable signals, it would be best to wait for some confirmation before using a bullish engulfing pattern to enter a trade.

Similar to the hanging man, the inverted hammer is a bottom reversal pattern and is best played at swing lows.  This formation is second only to the pin bar in the potential strength and setup of a possible change in trend.  They typically have the following characteristics:

• The upper shadow should be twice the length of the real body.
• The lower shadow will be small or non‐existent.
• Best to wait for confirmation on the following candle.

The inverted hammer shows that price met with strong buying in the market but was pushed back down by sellers.

It does not carry as much strength as a pin bar and this is why it is recommended that you wait for bullish confirmation on the following candle.

This Japanese candlestick formation would possibly be the second most important setup.  It is similar to the pin bar formation but does not offer as strong a signal as a possible change in trend.  The hanging man is a top reversal pattern and as such is best played at swing highs. They typically have the following characteristics:

• The upper shadow will be small or non‐existent.
• The lower shadow should be twice the length of the real body.
• Best to wait for confirmation on the following candle.

The hanging man shows that price met with strong selling in the market but was pushed back up by buyers.

It does not carry as much strength as a pin bar and it is recommended that you wait for bearish confirmation on the following candle.  Never jump the gun and get in early without confirmation first.

This probably the number one Japanese candlestick formation used by swing traders.  This an extremely powerful setup and if you only learn one price action formation, this should be it.  Pin bars typically have the following characteristics:

• One shadow will extend out while the other should be very small or non‐existent.
• The extended shadow should be twice the length of the real body.
• Best played at swing highs or swing lows.
• The longer the shadow the stronger the signal.

Pin bars should be very obvious due to their large extended shadow. This large shadow shows that price met strong resistance/support at this level and was rejected and there is chance of a reversal. Pin bars are best played at swing highs/lows or at points of support/resistance.

Spend sometime looking at charts and look for pin bars at swing highs and swing lows.  They are excellent at signaling the possibility of a change in trend.  This candlestick formation is possibly one of the BEST formations and once mastered should provide a trader with extremely reliable and rewarding trades.