What Is a Doji Candle Pattern, and What Does It Tell You?

There are several different types of Dojis, but the most common is a Neutral Doji, which has equal highs and lows. This is a bearish pattern that is formed when the open, low, and closing price of an assets are all close to one another with a long upper shadow. It is formed when the open, high, and close prices of an asset are similar. When there is a long lower shadow, it suggests that there was an aggressive selling phase. Buyers were able to withstand the selling and push the price up.

A bearish Doji Candlestick pattern like Gravestone Doji occurs during an uptrend and includes a double Doji candlestick. The first candlestick is a green candlestick that depicts the opening price of the trading day as lower than the closing price, indicating an uptrend. The second candlestick is a red candlestick that illustrates that the closing price of the currency pair on that day was lower than its opening price, indicating a downtrend. Traders receive a signal to sell or short the trade due to the expected downward market movement. Due to their tendency to blend into the background and their similar short stature, doji and hammer candles may appear similar. However, a hammer candle has a long lower shadow that is almost twice the size of a real body.

Types of Doji Candlestick Chart Patterns

????Japanese candlestick charts were developed in the 17th-18th centuries by the Japanese rice traders. They were introduced to trading by Steve Nison in the 20th century. Once you spot a doji, it’s good to look for confirmation before acting on it. Following a dragonfly doji, for example, look for bullish price action and strong trading volume to confirm a bullish reversal. You should also check that technical indicators like MACD and RSI point to a bullish reversal before trading based solely on a dragonfly doji. A Doji, or “dоji” in Japanese, is referred to as a candlestick that has an equal open and close and frequently forms part of patterns.

By seeing these candlesticks, you know that the market is currently waiting for something or is indecisive. As a trader, most people will wait for the market to make up its mind and lunge in one direction. Think of this candlestick as a sign that something is about to happen, and it’s your job to wait for other participants to make up their minds.

Does the Doji Candlestick Pattern Work? (Backtest Results)

So, depending on what you think will happen with the asset’s price when one of the Doji patterns appears, you can open a long position or a short position. Different assets have different criteria for determining the robustness of a Doji. Determining the robustness of the Doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the Doji should have a very small body that appears as a thin line. Steven Nison notes that a Doji that forms among other candlesticks with small real bodies would not be considered important.

• Doji form when a stock, cryptocurrency, commodity, or forex pair open and close are virtually equal.
• The Doji candle is an invaluable signal for traders who wish to examine the market conditions.
• This time, its open and close prices coincide with the low, forming an inverted T.
• When combined with other candlestick patterns, the Gravestone Doji can serve as a useful tool for investors who want to sell their holdings or enter short positions.
• This results in a candlestick that may look like a plus sign, a capital T, or an inverted capital T depending on the price action during the interval covered.

Next, we have the 4 Price Doji, which is another unique pattern, which happens rather rarely. When it does, it’s formed during low-volume trading, or on smaller timeframes. It looks like a minus-like line, suggesting all four price indicators were at the same level in a given period. Simply put, the market did not move at all during the period covered by the candle. It’s worth noting, traders should not make trading decisions solely based on the formation of a Doji candle. A single technical indicator can never be reliable enough to form a solid trading strategy.

How to Trade Doji Candlestick Patterns

Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick’s open. After a long black candlestick and Doji, traders should be on the alert for a potential morning Doji star. A doji is a name for a candlestick chart for a security that has an open and close that are virtually equal. Dojis are often used as components in patterns used to detect trading opportunities.

Doji appears in candlesticks with a small to non-existent body. It has long upper or lower wicks and signals a trend reversal. If you spot something that might be a doji, look for Doji Candlestick Pattern other signs that a trend is changing. Another common type of Doji candlestick is the Dragonfly Doji. This one has a long lower shadow, while the upper shadow is non-existent.

To put it simply, a https://www.bigshotrading.info/blog/bull-vs-bear-market-all-differences/ is when the candle has the same open and closing price. Candlestick patterns like Dojis can be very informative if traders want to understand the market better. However, Doji candles work best when used together with other technical tools and the trend. Remember, it’s possible that the market was hesitant for a short period of time and then continued moving in the direction of the trend. Therefore, it’s extremely important to conduct a thorough analysis before closing a position.