Doji Candlestick Pattern

Popularly known as the ‘doji candle’, the doji candlestick chart pattern is one of the most unique formations in the world of trading. Learn more about this pattern and find out how you can trade when you recognise it. In our final example, you can view two doji candles that resemble a Gravestone Doji and a Dragonfly Doji (they aren’t perfect examples) in action. Although you can spot other doji within the chart, let’s focus on the two labeled examples.

No representation or warranty is given as to the accuracy or completeness of the above information. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. It indicates that a current uptrend may be ending and a downward reversal is about to occur. Doji candlesticks occur when the opening and closing price of an asset are roughly the same. They indicate that market sentiment is indecisive, with a relatively even balance of bulls and bears unable to push prices decisively in one direction.

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Also, they are considered only if they are formed in trending conditions, since ranging conditions typically mean indecision. If the market is seeing a continuation of the previous trend, after the Doji pattern forms, it could indicate a fake reversal pattern. This could be considered an opportunity to add on to a previously long trade. It appears when price action opens and closes at the lower end of the trading range. After the candle open, buyers were able to push the price up but by the close they were not able to sustain the bullish momentum.

Types Of Doji Candlestick Patterns

The 2 Doji Candlestick strategy makes use of 2 single doji patterns, along with other indicators to spot new buy and sell trade setups in the market. Long-legged doji intimates uncertainty in the market with high activity. As with the doji star, the pattern works best when it follows a strong directional move, but it only represents the early signs of a reversal. However, these formations are not always followed by a reversal—just as spotting them does not guarantee one will occur. Bollinger Bands can help determine whether dojis and spinning tops indicate neutral price action or possibly more significant changes ahead.

This pattern is often found at key areas within an uptrend or downtrend, so investors will often look for it as they make their trading decisions. The Neutral Doji is a candlestick pattern that indicates indecision in the market. It consists of two long wicks, or shadows, that are approximately equal in length, with a small body in between. The color of the body can be either black or white; however, it is more commonly white. The importance of this pattern is that it shows indecision among traders and investors. The Dragonfly Doji shows the rejection of lower prices and thereafter, the market moved upwards and closed near the opening price.

While the main Doji represents indecision, other Dojis can tell a different story depending on the open/close price. A step by step guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next 😉) to reach profitable trading ASAP. Next, look for a small Doji on the second day showing that there is very minimal or no gap at all between opening and closing prices. When you are trading in Doji Candlestick patterns, it’s necessary to take the previous trend and volume into consideration. Three major types of doji formations are the gravestone, long-legged, and dragonfly.

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There is no line above the horizontal bar which creates a ‘T’ shape and signifies that prices did not move above the opening price. A very extended lower wick on this Doji at the bottom of a bearish move is a very bullish signal. Long-legged Doji candle has long shadows, showing that both buyers and sellers tried to control the price during a given time period. Therefore, it is crucial to monitor the closing price of a candle when the long-legged doji candle forms. Most traders consider the Doji to be bearish when it appears near support and bullish when it appears near resistance. However, this is not always true because some traders consider the Doji to be neutral.

• Since both sides were equally strong, neither side was able to make any significant gains or losses over the course of this period.
• Any statements about profits or income, expressed or implied, do not represent a guarantee.
• It often appears during an uptrend or a downtrend, signifying equality between bullish and bearish trends.
• This can help you exit a trade before a trend is coming to an end or enter into a new trend as it starts.

They provide a range of information about price movements, with their shapes leading to opinions regarding trends, entry/exit decisions and stop-loss points. These rules can be further validated by any of your favorite technical indicators; Bollinger Bands, moving averages, PSAR, etc. And all have the ability to improve your technical analysis, especially when combined with one of the several Japanese candlestick patterns.

In other words, the market has explored upward and downward options but then ‘rests’ without committing to either direction. In this example, we see a doji candlestick pattern taking part in an Evening Star candlestick pattern. The bulls are in control and push the price up during the first section, forming an uptrend. This ends with a bullish candlestick, which is followed by a doji candle shaped like a cross. This moment of indecision forecasts a reversal, and the bearish candle that follows confirms that the price will drop. In addition, because there is a gap between the doji and the subsequent candle, the odds of a reversal increase.

If confirms the prevalent downtrend and also illustrates that price closed lesser than the opening price. Dragon fly dojiWhen you see a dragonfly doji after a Bearish trend, you should buy the stock when a candle closes above the tiny body of the dragonfly doji. A stop loss should be placed on the top of the bearish candle before Dragonfly doji. Dragonfly doji are typically followed by confirmation candles, which traders use as a signal to act. The Doji candlestick, or Doji star, is a unique candle that reveals indecision in the forex market.

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Depending on their type, they can help you recognise when a price move or trend may be slowing down and when a price might reverse course. The Long-Legged Doji simply has a greater extension of the vertical lines above and below the horizontal line. This indicates that, during the timeframe of the candle price action dramatically moved up and down but closed at virtually the same level that it opened. Keep in mind that the higher probability trades will be those that are taken in the direction of the longer-term trends.

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Thus, the dragonfly doji is not a highly reliable indicator of price reversals. Even with the confirmation candlestick, it is not guaranteed that the price will continue the trend. Typically, a dragonfly doji with a higher volume is more reliable than one with a lower volume. Every candlestick pattern has four sets of data that help to define its shape.

The double Doji pattern consists of two Doji candles, one after the other. It is a reversal pattern that shows indecision in the market and indicates that a trend change may be how to write a letter to revenue officer imminent. This suggests that bulls pushed up prices but couldn’t sustain their momentum. A doji on its own does not necessarily indicate an upcoming reversal of the trend.

Your actual trading may result in losses as no trading system is guaranteed. Depending on the length of the shadow and other factors, the uncertainty can change to an immediate reversal in price or a small suggestion that a reversal will eventually happen. A single Doji is usually a good indication of indecision however, two Dojis , presents an even greater indication that often results in a strong breakout. The Double Doji strategy looks to take advantage of the strong directional move that unfolds after the period of indecision. Remember, it is possible that the market was undecided for a brief period and then continued to advance in the direction of the trend.

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The difference between Doji and other candlestick patterns is it has no real body. The opening and closing values are the same, with different high and low. A long-legged Doji, with long upper and lower shadows, is called a “Rickshaw Man”. 2 Doji candles in a row is a potent candlestick formation if you are a price-action lover.

A dragonfly doji is a candlestick pattern that signals a possible price reversal. The candle is composed of a long lower shadow and an open, high, and close price that equal each other. The four-candle price doji represents indecision among buyers and sellers over whether to continue an uptrend or downtrend. This indecision can last for several days before either side wins out and pushes prices higher or lower than they were before this indecision began.

The downward movement of the next candlestick will provide confirmation. A Hammer Doji is a bullish reversal pattern that happens during a downtrend. The chart below makes use of the stochastic indicator, which shows that the market is currently in overbought territory – adding to the bullish bias. In isolation, a doji candlestick is a neutral indicator that provides little information. Moreover, a doji is not a common occurrence; therefore, it is not a reliable tool for spotting things like price reversals.