Doji Candlestick Pattern: What Is It and How to Trade with Doji?

A possible place to enter the long is when the price moves above the open of the first candle. The doji shows that some indecision has entered the minds of sellers. Typically, traders don’t act on the pattern unless the price follows through to the upside within the next couple of candles.

• One possible place to enter the trade is when the price drops below the first candle open.
• Once again, the doji must be contained within the real body of the prior candle.
• Information presented by DailyFX Limited should be construed as market commentary, merely observing economical, political and market conditions.
• Both indicate possible trend reversals but must be confirmed by the candle that follows.

Some of them can give clues and hints as to where the market might be looking to go next. By recognizing these different types of Doji candlesticks, you can get an idea of what has been going on in the market internally. In this example, the gravestone doji could predict a further breakdown from the current levels to close the gap near the 50- or 200-day moving averages at $4.16 and $4.08, respectively. We can then incorporate other principals of price action, such as up-trends form continuous higher-highs and higher-lows. After running so far, so fast, and upon intersecting into a strong area of support, indecision entered the marketplace in the form of the doji. There are a few recommendations to follow when analyzing and trading doji candles.

Understanding the Long-Legged Doji

This can be an indication that the sellers are losing momentum and the buyers may be taking over, potentially leading to an upward trend. Any trader who wants to use the Doji candlestick pattern https://www.bigshotrading.info/ in their trading strategy needs to be able to find it on price charts. Fortunately, it’s relatively easy to recognize the pattern with a little practice and the use of technical indicators.

It is part of the broader doji family that consists of the standard doji, dragonfly doji, and gravestone doji. While both the Dragonfly Doji and the Hammer are known for their bullish reversal patterns that appear at the bottom of downtrends, their structure is different. These patterns should be used in conjunction with what does doji mean other indicators for better results. Estimating the potential reward of a doji-informed trade also can be difficult because candlestick patterns don’t typically provide price targets. Other techniques, such as other candlestick patterns, indicators, or strategies, are required to exit the trade, when and if profitable.

How is a Doji candlestick Pattern formed?

The dragonfly doji, which isn’t a very frequent pattern, looks like a “T” and it is formed when the high, open, and close of the session are all equal or nearly the same. Unlike the gravestone doji, the dragonfly doji pattern has a long lower shadow. Other technical techniques, like other candlestick patterns, technical analysis indicators, or strategies should be used with this candlestick pattern for making trading decisions. This doji candlestick is formed when the market opens, and bullish traders push prices up, whereas bearish traders reject the higher price and push it back down.

This makes them most akin to the gravestone doji, which as mentioned above, gives the strongest bearish reversal signal of all the doji variations. Put simply, the double doji pattern consists of two consecutive doji candlesticks. In other words, it resembles two candles with the same opening and closing prices one after the other. For example, a dragonfly doji looks like a T, a gravestone doji looks like an inverted dragonfly, a long-legged doji has long upper or/and lower shadows. A gravestone doji is a bearish reversal candlestick pattern formed when the open, low, and closing prices are all near each other with a long upper shadow.

Where Can I Trade?

The Dragonfly Doji can appear at either the top of an uptrend or the bottom of a downtrend and signals the potential for a change in direction. 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. Some traders will want to see more confirmation—the price movements that occur after the long-legged doji—before acting. This is because long-legged dojis can sometimes occur in clusters, or as part of a larger consolidation. These consolidations may result in reversals of the prior trend, or a continuation of it, depending on which way the price breaks out of the consolidation.

Following an uptrend, it shows more selling is entering the market and a price decline could follow. In both cases, the candle following the dragonfly doji needs to confirm the direction. 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. Typically, an appearance of a double doji pattern signifies indecision and a potential trend reversal in either direction.