How to Make Money Trading with Candlestick Charts

Doji After a Stock is in an Overbought
Condition
The Japanese say that whenever you see a
Doji at the top, be prepared to sell. Consider
a stock moving up in a trend. The bulls are
happy with the white candles increasing their
net worth. Then, one day, the candle forms a
Doji. The bulls were running unchecked till
now. Now the bears are starting to fight
back. They are fighting back to the point
where the bulls are not able to move the
price much higher from the open. This gives
rise to the Doji formation. The bulls are now
tired. The bears sense this. If the price opens
lower the next day, there is high probability

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that the bulls have given in and the trend has
reversed for a while.
Doji After a Stock is in an Oversold
Condition
Now consider a stock that has been moving
down for a while. The bears are happy. The
black candles visually demonstrate their hold
on the stock. Then, one day, the bulls step in.
They fight the bears and finally the dayends
as a Doji. What does this do to the bears’
sentiment? They get nervous. They know they
are tired. If the next day the price stays
firmly positive, the bears move away. The
trend reverses as the bulls get more
confident.
Doji in a Sideways Market

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Consider a stock moving sideways for a
period of time. The bulls and bears are
fighting it out. Then one day you notice a nice
big Doji. This is where things get interesting.
You now know that an equilibrium has been
achieved. What you want to see now is a gap
up or gap down scenario the next day. This
indicates high probability that a trend will
start in the direction of the gap. The reason
being, after the Doji (say in your mind
indecision
), the traders have made up their
mind as to the stronger force between the
bulls and the bears. As a candlestick trader,
you can now enter this market to ride the new
trend.
The following conditions enhance the
probability of reversal:

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Stochastics in oversold or overbought
conditions.
Heavy volume on the Doji day.
Long upper and lower shadows implying
great indecision at the point.
A gap up or gap down open the next day.
Figure 3.3
shows a Doji stopping the
downtrend in Pfizer stock. You will notice
that Pfizer was already in an oversold
condition as indicated by the stochastics
position. What happened the day after the
Doji? A gap up bullish candle!

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Figure 3.3: