Forex Trading

What is a Doji candlestick? ++ Definition & trading strategy

what does a doji mean

Broadly, candlestick charts can reveal information about market trends, sentiment, momentum, and volatility. The patterns that form in the candlestick charts are signals of such market actions and reactions. The gravestone doji candlestick pattern is a bearish trend reversal indicator.

As you can see, this interpretation is quite subjective and there are no strict rules but to look at recent price action. A series of very small real bodies as in the chart above would not be interpreted as Doji candles. what does a doji mean The perfect Doji has the same open price and close price, however, something must be considered. If the difference between the open and close prices is within a few ticks, this could also be interpreted as a Doji pattern.

How to trade the Dragonfly Doji in a range market

By recognizing these different types of Doji candlesticks, you can get an idea of what has been going on in the market internally. The Doji candlestick shows a lack of conviction and that the market is trying to figure out its next move. While markets don’t sit still forever, they do occasionally take breaks. Because of this, this candlestick can give you an idea of when the market is trying to make a move or perhaps even when it has changed its mind. An example of Doji is when bulls push prices upward after the market opens, but this is rejected and the prices are pushed lower by bears.

It mostly appears during a downtrend or uptrend, resulting in inequality between bearish and optimistic. Candlestick charts in general can be a helpful analytical tool in trading. However, special attention should be paid to the Doji candlestick.

How to pronounce doji?

The long-legged doji shows that there was a battle between buyers and sellers. As the name suggests, a gravestone doji is an ominous sign that the current trend is being exhausted and is about to reverse. Many beginner traders have come across a strange candlestick, looking like a cross with little or no body. While the ways to use the Doji candlestick are essentially limitless, there are a handful of strategies that many traders try to employ.

what does a doji mean

From my experience, support and resistance, channel trading and breakout trading work best with Doji candles. Think about it, if a Doji candle signals indecision, why would you interpret this as a signal to enter in the opposing direction? I prefer to consider Doji candles as accumulation zones where bull or bears are gaining momentum for a continuation of the main trend. 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. If the breakout occurs in the other direction, we ignore the signal and move on to the next setup. The reality is that only one Doji will mark the end of an uptrend or a downtrend and other 9 Doji candles will generate false signals.

What is a Hammer Candlestick Pattern?

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. In this case, there is a high probability of a bearish reversal or a correction for the asset. A gravestone doji is a trading pattern that occurs in technical analysis. It is a bearish trend that indicates a reversal is on the horizon. Traders can assume that the reversal will be accompanied by a downtrend in the security’s price.

  • Or most commonly in the smallest of time frames – 15-minutes to tick level time frames.
  • The lack of a lower shadow suggests that there is little support for the asset at the current price level.
  • The open, low, and closing prices can be equal or almost equal for the pattern to be valid.
  • From my experience, support and resistance, channel trading and breakout trading work best with Doji candles.
  • A Long Legged Doji is a standard doji candlestick that occurs when the open and close is the same price but, with a long upper and lower wick (relative to the earlier candles).