Doji Candlestick Definition & Example

Author Name(s):
Author Email:

A Gravestone Doji or a Dragonfly Doji with wicks that are larger than the rest of the candles surrounding it would suggest that Price is doing something interesting on the lower timeframe. Possibly some support and resistance action happening depending on the market structure or maybe a news event. Sellers would have stepped in during the second candle within the red circle .

  • The length of the upper and lower shadows can vary, and the resulting candlestick looks like either a cross, inverted cross or plus sign.
  • There was brief dip which ended with a long wick at the candle which got to the lowest price during this pullback.
  • The long-legged Doji has a long upper and lower shadows almost of equal length.
  • The stock tried to continue its run, but sellers jumped in big time and drove it back to where it started the day on high volume.
  • We have to spot the recent market highs and lows around the two Doji candles and wait for a trade in direction of the main trend.
  • After a long uptrend, the appearance of a doji candlestick can be an ominous warning sign that the trend has peaked or is close to peaking.

Doji 1 has the same color as the trend and so does not have a significant influence on the price action. The open, the low and the close of the session is at the same level and the high creates a long upper shadow. You will see in the daily chart below of the U.S. dollar / Japanese yen a number of dojis at price reversal locations. In the image below, you can see a variety of different candlesticks. Here, the extremities of the symbol represent the high and low price, and either end of the body of the candlestick represents the open and the close of each period’s price.

Learn To Trade

The opposite is true when a doji that appears at the end of a downtrend. After an uptrend, the Doji signals a reversal without needing confirmation but after a downtrend, the doji candlestick Doji requires a bullish day to confirm. The Doji candle is usually not a great entry candle for a trade and traders should not make decisions based solely on the doji.

doji candlestick

The market could swing either way, and you need to build a stance that adapts to the expected movement in the market. Six minutes later, the price reaches our initial target on the chart; however, we hold the position in hopes of more profits. For me, I always like to exit my trade at my target profit. Reason being, the stock market moves extremely fast and you do not have the luxury of waiting on a bigger payday. Also, there is the psychological strain of always wanting more, but never quite getting all of a move.

Bearish Gapping Doji Candlestick Pattern

It has reliable cryptography to ensure that every online transaction is safe and secure. However keeping in mind the 2nd rule, i.e. ‘be flexible, verify and quantify’ even if there is a wafer-thin body, the candle can be considered a Doji. Clearly, with no clarity on what is likely to happen, the trader needs to be prepared for both the situations, doji candlestick i.e. reversal and continuation. Or the markets could reverse its directions, and the prices could increase. This is a Candlestick Chart Pattern where the open and close are either the same or very close to each other and in the middle of the candle’s range. Our initial target is located at a distance equal to twice the size of the Doji pattern.

How do you identify a doji?

The vertical line of the doji pattern is called the wick, while the horizontal line is the body. The wick can vary in length, as the top represents the highest price, and the bottom represents the low. The body represents the difference between the opening and closing price.

Depending on what the preceding candlestick patterns are telling you, it may indicate a price reversal. This is often the case when they’re observed during a strong upward or downward trend, as they show that the market is now becoming indecisive following the recent trend. The 4-Price Doji has no wick, just an open and close price, which also indicates the high and low price for the session.

Stock Market Basics: Candlestick Patterns

A doji is a single candlestick where the open and close price is equal or very close to the same. The doji is considered to be an important reversal signal at market tops and market bottoms. Nison (1991, p. 151) states from his personal experience that dojis are best at calling tops, but are not as good at calling bottoms. He suggests that dojis at bottoms need extra confirmation. When a doji is seen after an uptrend, Nison (1991, p. 153) suggests selling any longs traders might have. In contrast, a bullish gapping doji happens during an uptrend when prices gap up and then a doji appears.

Sometimes, flash news does not affect the market trend, rather, they create temporary volatility. This may create a sudden news spike on a lower time frame. Then the original bias may continue to influence price direction once again, This may cause the creation of Dojis and other candlestick formations.

Doji

It is important to pay attention to where the doji occurs. For example, if the stock is in the early stages of an uptrend or downtrend, then it is unlikely that the doji is signaling its peak or its bottom. This stop loss should be placed above the highest point of the candlestick. The stop loss should be placed above the high of the gravestone doji to ensure we protect ourselves if the trade goes against us. For the gravestone doji, we have devised a method for how to set profit targets for when to exit the trade. When you trade a gravestone doji, you need to determine where to place your stop loss order.

You can use any technical levels to watch for the Doji patterns – support and resistance levels, Fibonacci, etc. For this example, though, we’ll use supply and Forex Technical Analysis examples demand zones – it’s what I mostly use, so it makes it easy. The Doji star doesn’t form often in forex – it’s much more common in stocks and other markets.

Charting

So, the better solution of trading with Doji candles is to trade in the direction of the main trend. The Rare Doji occurs the open, high, low, and close of the price are all the same. This pattern forms when a market is very illiquid or the data source did not have any prices other than the close. The Long-Legged Doji has long upper and lower shadows in the middle of the period’s trading range, reflecting the indecision of buyers and sellers. Just look at the picture above, the price indeed declined after the appearance of a Gravestone Doji, but not before taking some stop-losses on its way. That’s why it’s better to trade this pattern near strong support and resistance levels and in combination with other indicators.

By the end of the day, the day closes flat, or close to it. This is an indicator that the bullish run is starting to lose steam. Each group creates a different candlestick pattern and trend when they are in control of price.

The bulls made a futile attempt to take the market higher. The bears tried to take the markets lower, and it did not work either. Neither the bulls nor the bears could establish any influence on the market as this is evident with the small real body. Thus Spinning tops are indicative of a market where indecision and uncertainty prevails. Gravestone Doji is a candlestick bar where the open, low, and close are at the low of the day. The gravestone doji is a bearish formation and its success rate is greatly increased when the candle forms at a market top.

How do you read a doji candlestick?

The vertical line of the doji pattern is called the wick, while the horizontal line is the body. The wick can vary in length, as the top represents the highest price, and the bottom represents the low. The body represents the difference between the opening and closing price.

The lower wick indicates that there was a large sell-off, but bulls managed to take back control and drive the price up. Keeping that in mind, after a prolonged uptrend, the sell-off may act as a warning that the bulls might soon be losing control of the market. A hammer shows that even though the selling pressure was high, the bulls drove the price back up close to the open. A hammer can be either red or green, but green hammers may indicate a stronger bull reaction.

Candlestick Charts Stars

This shows a strong battle between the buyers and the sellers at that moment. Next blue candlestick is not significant due to the strong rejection of higher prices indicated by the long upper shadow of the doji. A blue dragonfly following a long red candlestick, at the support level after a strong down trend, shows that sellers are likely to loose in favour of buyers in the market. The function filters candles that look like dojis, without considering the current trend direction.

doji candlestick

If the trader intends to buy, he is better off buying only half the quantity, and he should wait for the markets to move in his direction. Spinning tops convey indecision in the market with both bulls and bears being in equal control. Here is another chart where the doji appears after a healthy uptrend after which the market reverses its direction and corrects. Obviously, the colour of the candle does not matter in case of a wafer-thin real body. What matters is the fact that the open and close prices were very close to each other.

Neutral Doji

Author:

388 total views, no views today

About the author: dev