Hello dear readers, success in financial markets relies on the ability to conduct both psychological and fundamental analyses, as well as the skill to perform technical analysis. With knowledge of technical analysis, it becomes possible to accurately understand and evaluate price movements. One of the most widely used analysis methods in this field is technical analysis using Japanese candlestick patterns. The combination of candlesticks leads to the formation of various patterns, and these patterns provide valuable information for predicting the future direction of prices. Today, we have decided to discuss the "Dumpling Top" candlestick pattern.
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| Dumpling Top |
- Topic: Dumpling Top
- Type: bearish
- Trend direction: reversal
- Opposite pattern: Fry Pan Bottom
Dumpling Top Pattern Formation
The Dumpling Top pattern gets its name from the resemblance
of its small candlestick bodies to dumplings. Formed through a combination of
various candlesticks, this candlestick series creates a rounded structure at
its top. Typically occurring at the end of an uptrend, the structure of the
candles forming this pattern is as follows:
- The first bullish candles: The pattern typically starts with a series of large green-bodied bullish candles.
- The top candles: These candles (dumplings) are usually small-bodied with long shadows. They can be either bullish (green) or bearish (red) candles. They can also appear as doji candles at times.
- The gap and bearish candles: After the top candles (dumplings) are completed, the down candles appear, and the candle body becomes larger. At this point, a downward gap occurs, and immediately after, a down candle appears.
Thus, the pattern is complete. At this point, there is an
important detail to note. The formation of a gap is crucial in the development
of the Dumpling Top pattern. If a gap does not occur, this situation is
recognized not as a Dumpling Top pattern but rather as a Rounding Top pattern.
Dumpling Top Pattern Usage in Trading
The Dumpling Top formation is a reversal pattern that occurs
at the peak of a bull market. This formation indicates a diminishing strength
of buyers over time and a tendency for sellers to take control. While bulls
strive to surpass the peak, bears effectively gain control and pull the market
downward. This situation may signal the beginning of a downtrend. When the
pattern is identified, we may consider opening a short position.
Selling: It is possible to place a sell order below the red
candle that forms after the gap within the pattern. If an earlier position is
necessary, considering a short position just below the gap may be an option.
Stop Loss: Placing a stop loss order above the upper part of
the pattern's body could be a sensible option.
Target: The target is determined by the length of the
pattern body or twice the length of this length. Additionally, considering the
Fibonacci retracement levels and risk/reward ratio, this target can be used to
develop trading strategies more effectively and manage probable risks.
Examine the trading example with the Dumpling Top pattern in
the Google Inc. stock chart below:
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| Dumpling Top trading example, Google Inc. stock chart |
Don't neglect it: The Dumpling Top pattern, like any
pattern, can sometimes be misleading, particularly in the Forex market. It
should be evaluated in conjunction with other technical analysis tools and
market indicators before being used on its own, and risk management strategies
should also be kept in mind.