The long-legged doji is an especially important doji at tops. As shown in Exhibit 8.2, this doji has long upper and lower shadows, clearly reflecting irresolution. Throughout the session, the market pushed strongly higher, then sharply lower (or vice versa). It then closed at, or very near, the opening price. If the opening and closing are in the center of the session’s range, the line is referred to as a rickshaw man. If there is a non-doji session with a very long upper and/or lower shadow with a small real body, the line is referred to as a high-wave line. A group of high-wave candlesticks are a reversal formation. To the Japanese, very long upper or lower shadows represent a candlestick that has, as they say, “lost its sense of direction. “
In Exhibit 8.12, late April and early May trading sessions were marked by a series of doji or near-doji days. These narrow real bodies are an unhealthy sign after a rally. They indicate tired markets. In a rally one likes to see the buyers in control. The long-legged doji (in this case, two rickshaw-man lines) were a major danger sign (although the opening and closing on the first one were not exactly the same, they were close enough to be considered a doji day). These long-legged doji reflects a market that has “lost its sense of direction.” This group of small range candlestick days formed a major top. With these bearish candles overhanging the market, we can perhaps jokingly call this the “falling chandelier formation.”
Exhibit 8.13 has a strong hint of a peak with the long-legged doji (here the opening and closing were close enough to consider this a doji session). The long-legged doji day also completed a harami pattern and a tweezers top. This confluence of technical factors were forceful clues that the highs were at hand. Exhibit 8.14 illustrates that a price peak in gold was reached with the long-legged doji in January. The long upper shadows in early February confirmed the resistance set by the long-legged doji.