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

A doji candle chart occurs when the opening and closing prices for a security are just about identical. If this price is close to the low it is known as a “gravestone,” close to the high a “dragonfly”, and toward the middle a “long-legged” doji. The name doji comes from the Japanese word meaning “the same thing” since both the open and close are the same.

However, the currency price doesn’t have to do anything with its real, intrinsic value. Analytics role is to establish the trades of the highest probability. Every candlestick has four sets of information that determine its shape. A transaction is completed when a buyer agrees on a price with a seller.

Types of Doji Patterns

The Long-Legged Doji indicates that there was more volatility between the high and low prices in the trading session than the neutral Doji. This article explains what the Doji candlestick is and introduces the five different types of Doji used in forex trading. It will also cover top strategies to trade using the Doji candlestick. Generally, it represents the indecision in trading action for both sellers and buyers.

The standard doji is a basic cross formation with equal length tails. As stated earlier, a standard doji is a neutral pattern, and when used within the context of a larger pattern, is a useful tool in predicting market reversal. The price movements of a standard doji are modest, thus resulting in neither a long upper or lower shadow. It is sure that the appearance of Doji candles in your charts can be a “heads up” signal.

What happens after a Doji candle?

And do not limit yourself to a candlestick representation but always use other indicators to determine the market trends with higher precision. Doji patterns can be helpful for traders trying to identify market reversals or breakout opportunities but should not be used on their own. To confirm any potential signals from the Doji pattern, one should look at other technical indicators, such as volume, support/resistance levels, and trend lines. An example of this functionality is illustrated by the dragonfly doji reversal pattern.

• A Gravestone Doji is the opposite of a Dragonfly Doji, showing the open and close price around the same level as the low price with a long upper wick.
• Morning stars and evening stars are examples of the doji candlestick being used within a larger chart pattern.
• It will also cover top strategies to trade using the Doji candlestick.
• The length of its tails, or the vertical range of the candlestick varies depending upon the magnitude of price action outside of the open and closing price.

We will help you to recognize them and learn how to interpret them in financial markets trading. Studying candlestick patterns in the prices of assets traded in the stock market is a commonly employed method of predicting trends and formulating a trading strategy. There exist a number of different candlestick patterns that indicate various possible directions the market may be inclined towards when viewed along with an assortment of other data. A doji formation generally can be interpreted as a sign of indecision, meaning neither bulls nor bears can successfully take over. Of its variations, the dragonfly doji is seen as a bullish reversal pattern that occurs at the bottom of downtrends. The gravestone doji is read as a bearish reversal at the peak of uptrends.

Top 5 Types of Doji Candlestick Patterns

If either a doji or spinning top is spotted, look to other indicators such as Bollinger Bands® to determine the context to decide if they are indicative of trend neutrality or reversal. Gravestone Doji (which looks like an inverted “T”) signifies that a stock or other financial asset opened and closed at the day’s low. The pattern normally forms at the bottom or end of a downward trend.

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. There is no assurance that the price will continue in the expected direction following the confirmation candle. Candlestick charts can be used to discern quite a bit of information about market trends, sentiment, momentum, and volatility. By themselves, Doji candles aren’t the most powerful indicators of any given movement. Dragonfly Dojis can often indicate that the market is about to change direction, particularly if they emerge after a downtrend.

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Likewise, if the Doji forms after an extended uptrend, it could signal that bulls are running out of steam and that a reversal to the downside is possible. As such, traders should always be on the lookout for Doji patterns when analyzing price charts. The usual approach to forecasting trends and building a trading strategy is to examine candlestick patterns in the prices of assets traded on the stock market.

While both of these formations can emerge in any time frame, they most often signal a price reversal in longer-term charts. That’s why traders looking to enter or exit a position can find them very useful. In the world of candlestick charts, there are two very similar-looking formations known as the Doji and the Spinning doji candlestick pattern Top. Both occur when the opening and closing prices are very close together, resulting in a small body with long upper and lower wicks. When it appears at the top of a bullish rally, it shows that there is a potential price reversal. It is, therefore, a candlestick pattern to watch closely in these conditions.