Learn About the Doji Candlestick Pattern EU

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. In Japanese, the word “doji” (which translates as “blunder” or “mistake”) denotes the rarity of an exact match between a closing and opening price. In the end, a transitional candlestick serves as the primary indicator of the market’s bulls’ and bears’ equality and indecision. A doji Japanese candlestick is a formation that appears in the candlestick chart when the price movement has stopped, and there is market uncertainty. The Doji candlestick pattern may not provide the strongest buy or sell signals in technical analysis, and should likely be used alongside other metrics. Nevertheless, it is a useful market signal to consider when gauging the degree of indecisiveness between buyers and sellers.

Conservative traders can choose the next level up for their profit target, or if you believe a stronger trend will take over then you can look to the 50% or 61.8% areas. Finally, let’s examine what a doji trading strategy might look like. For this example, we’re going to look at trading EUR/USD using a combination of doji and the Fibonacci retracement tool. So, you may want to consider using them as part of a wider confirmation strategy. The long lower wick tells us that the market continued to fall at the beginning of the period. But by the end, buyers had intervened, and all the losses had been overcome.

This doji has long upper and lower shadows and roughly the same opening and closing prices. In addition to signaling indecision, the long-legged doji can also indicate the beginning of a consolidation period where price action may soon break out to form a new trend. These doji can be a sign that sentiment is changing and that a trend reversal is on the horizon. As with the dragonfly Doji and other candlesticks, the reversal implications of gravestone Doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, the focus turns to the evidence of buying pressure and a potential bullish reversal.

A dragonfly doji is considered a signal of a potential reversal in the security price. It occurs when the open, close, and high prices of a security are virtually the same. Thus, a dragonfly doji is T-shaped without an upper tail, but only a long lower tail. A Doji candle is a type of candlestick formation that appears when the open and close prices are nearly equal and the shadows are sufficiently long. The horizontal line of the Doji pattern is referred to as the body, and the vertical line is known as the wick.

But if you spot a doji in a strongly trending market, it could be a sign that momentum could be waning, signalling a possible impending reversal. Here, a long green candlestick appears on an uptrend, but the bull run pauses with a doji. Then, it reverses with a long red stick which kicks off a new downtrend. One key example of doji in context is the doji star pattern, which contains a doji as the second candlestick in a three-stick run. A four-price doji, finally, is a candlestick with little to no body and little to no upper or lower wick.

There are a few recommendations to follow when analyzing and trading doji candles. Doji has a lot of variations, for example, gravestone, long-legged doji, dragonfly, doji following a long bullish candlestick, etc., which could be confusing. In other words, the market did not move during the period covered by the candlestick. Conversely, the candlestick’s occurence during an uptrend hints at a potential reversal. If the Dragon Doji pattern forms at the end of a downtrend, it can be considered a buy signal, as shown below. Traders can combine the neutral Doji with momentum indicators like the RSI or Moving Average Convergence Divergence (MACD) to help identify potential market tops and bottoms.

Types of Doji Candlestick Pattern

If entering long on a bullish reversal, a stop loss can be placed below the low of the dragonfly. If enter short after a bearish reversal, a stop loss can be placed above the high of the dragonfly. The signal is confirmed if the candle following the dragonfly rises, closing above the close of the dragonfly. The stronger the rally on the day following the bullish dragonfly, the more reliable the reversal is.

• Ideally, these candlesticks shouldn’t have long higher wicks, indicating that selling pressure continues to push the price lower.
• Thus, candlestick charts are more prevalently used in technical analysis than line charts.
• While a Doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick.
• Although the price may have fluctuated throughout the session, it was driven back to its original, opening price.

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. A doji candle is dominated by wicks with very small bodies or no bodies at all. This formation can occur at the end of a downtrend, as well in the closing stages of the uptrend. This means a doji can be classified as both a reversal and a continuation pattern, as it signals there is no firm outcome of who has control over the price action. 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 Japanese doji candlestick is an important signal for traders, especially if it forms at the high or the low of the trend in the daily timeframe.

Conversely, when the market has shown an upward trend before, a dragonfly doji might signal a price drop, known as a bearish dragonfly. The downward movement of the next candlestick will provide confirmation. There are numerous Doji patterns, such as the long-legged, gravestone, and dragonfly Doji. In fact, Doji can also be used to show that a trend is losing momentum.

The Double Doji strategy looks to take advantage of the strong directional move that unfolds after the period of indecision. Indecision reigns, as neither the buyers and sellers are in control. The vertical line of the Doji represents the total trading range of the timeframe.

Doji trading strategy example

The patterns are calculated every 10 minutes during the trading day using delayed daily data, so the pattern may not be visible on an Intraday chart. That might not sound like it provides much of a signal on where the market’s headed next. But depending on where the doji lands, and what type of doji you see, it can be a hugely useful pattern. The continuation is confirmed by a green candle with a large body, indicating that the bulls are back in control of the direction of the trend.

Today, the Doji pattern is a meaningful signal for technical analysts representing indecision in the market. It is represented by a single candle pattern and an absence of the body or a small body found in most other candlestick patterns. Candlestick patterns are formed by arranging multiple candles in a specific sequence.

Combine various indicators

There is no assurance that the price will continue in the expected direction following the confirmation candle. A popular Doji candlestick trading strategy involves looking for Dojis to appear near levels of support or resistance. The below chart highlights the Dragonfly Doji appearing near trendline support. In this scenario, the Doji doesn’t appear at the top of the uptrend as alluded to previously, but traders can still trade based on what the candlestick reveals about the market. Crypto traders should have a solid understanding of the basics of candlestick patterns before using them to make trading decisions. This includes understanding how to read candlestick charts and the various patterns that can form.

This pattern is a significant signal in an uptrend, which warns of bearish activity at the levels reached, so, bullish traders should be prepared to exit trades. A dragonfly doji could also emerge at the low of a downtrend, but it needs additional confirmation in this case. The longer is the upper shadow of the gravestone doji, the stronger is the reversal signal. It was developed in the 18th century by a Japanese rice trader as a tool to determine future price performance. The candlestick pattern comprises the body (the hollow or filled bar) and the shadow or wick (the lines extending beyond the body). Technical analysis of the candlestick helps traders identify profitable trades.

Want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies. Also unique to Barchart, Flipcharts allow you to scroll through all the symbols on the table in a chart view. While viewing Flipcharts, you can apply a custom chart template, further customizing the way you can analyze the symbols. This page provides a list of stocks where a specific Candlestick pattern has been detected.

A hammer can either be red or green, but green hammers may indicate a stronger bullish reaction. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. In Chart 2 above (doji A), at the opening, the bulls were in charge. However, the morning rally did not last long before the bears took over. From mid-morning until late-afternoon, General Electric sold off, but by the end of the day, bulls pushed GE back to the opening price of the day.

Using the same chart as before, we zoomed out a bit to show more historical price action. Next, we used our Fibonacci retracement tool to draw our Fibonacci ratios from the high to the low of the downtrend that preceded the upward move we showed before. The Western world was only introduced to the candlestick chart during the 1990s by the renowned technical analyst, author and speaker Steve Nison.

When using Doji, it is important to consider the context in which it occurs, the time frame being analyzed, and the market conditions. Due to their tendency to blend into the background and their similar short stature, doji and hammer https://trading-market.org/ candles may appear similar. However, a hammer candle has a long lower shadow that is almost twice the size of a real body. Usually, following a price decline, a hammer candlestick appears, indicating a potential future reversal.

After a decline or long black candlestick, a Doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. 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.

• If the price rises on the confirmation candle, the reversal signal is invalidated as the price could continue rising.
• StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider.
• 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.
• When the price of a security has shown a downward trend, it might signal an upcoming price increase.
• Prices move above and below the opening level during the session but close at or near the opening level.

The dragonfly doji is not a common occurrence, therefore, it is not a reliable tool for spotting most price reversals. There is no assurance the price will continue in the expected direction following the confirmation candle. Our final trade example shows two doji forex patterns that appeared at a 78.6% Fibonacci retracement level, right before a corrective phase ended. Here too, the MACD indicator showed clear momentum divergence before the price reversed higher.

In addition to the reliability concern, another limitation of the doji pattern is that it cannot provide price targets. It is difficult to estimate the return of a doji candlestick pattern trade that is made according to pure dragonfly doji analysis. Traders need to use other technical indicators or patterns to identify the proper time for an exit.

After a whole lot of yelling and screaming, the result showed minor change from the initial open. We’ve aligned two signals two create this opportunity, but it’s still a good idea to wait for confirmation before we open the position. In this case, we could see if the next session takes the form of a green candlestick, which could be the resumption of the original bull trend.

HaiKhuu runs some of the largest communities of stock traders on Facebook, Discord, and TikTok. With over a quarter-million retail traders in the HaiKhuu Trading communities, we have been able to help out hundreds of thousands of stock traders. According to the original definition of the doji, the open and close should be the same. What if the open and close aren’t the same but are very close to each other? However, since cryptocurrency markets can be very volatile, an exact doji is rare. As such, the spinning top is often used interchangeably with the term doji.