What Is a Doji Candle & How to Trade With it?

What Is a Doji Candle & How to Trade With it?

Doji Candlestick Pattern

Candlestick is a type of charting that contains the open, close, high, and low prices of an asset for a specific time period. Candlestick charts are more informative than typical line charts, which only provide the close price or average price. Thus, candlestick charts are more prevalently used in technical analysis than line charts. 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.

  • Whether you want to capture a swing or whether you want to capture a trend, you can use the appropriate trade management or trailing stop loss technique.
  • The bottom is established by a large bearish candlestick that is met the next day by an indecisive doji.
  • However, when the opening and closing prices match, it speaks of indecision.
  • You can see the open and the close is the same level, this is why you see a straight line on the chart.
  • The open, high, and close prices match each other, and the low of the period is significantly lower than the former three.
  • The idea is to sell near resistance, and buy near support.
  • Each should open within the previous body and the close should be near the high of the day.

His super excellent explanation and clarifies more the concept he had. This means that the price did not change at all during the period of a candlestick. If the price has tested the highs/lows (of the Long-Legged Doji) multiple times, then it’s likely to break out. A Gravestone Doji occurs when the open and close is the same price but, with a long upper wick. In a strong trend or healthy trend, a doji candle is likely to “bounce off” the Moving Average. We can use the Fibonacci tool for our maximum loss and target profit here, too. If the market continues down to the next Fibonacci level, then our trade has likely failed, so this makes a good area for our stop loss.

Shooting Star

As such, it is usually important to use them in combination with other technical indicators like moving averages and RSI. In most cases, the price of an asset usually turns around when a doji pattern forms. When there is an uptrend, a gravestone Doji Candlestick Pattern Doji is usually a signal to exit or start a bearish pattern. Four Price Doji illustrationIn other words, the market did not move during the period covered by the candlestick. This type of Doji is not a reliable pattern and can be ignored.

What is doji candlestick pattern?

A doji names a trading session in which a security has an open and close that are virtually equal, which resembles a candlestick on a chart. The word doji comes from the Japanese phrase meaning “the same thing.” A doji candlestick is a neutral indicator that provides little information.

Doji patterns provide useful information when price action is trending, but they may not be indicative of any sudden changes when price action is sideways. Popularly known as the ‘doji candle’, the doji candlestick chart pattern is one of the most unique formations in the world of trading. Learn more about this pattern and find out how you can trade when you recognise it. As seen above, the gravestone https://www.bigshotrading.info/ looks very similar to the shooting star pattern. The dragonfly doji pattern doesn't occur frequently, but when it does it is a warning sign that the trend may change direction. Following a price advance, the dragonfly's long lower shadow shows that sellers were able to take control for at least part of the period.

Bullish Gapping Doji Candlestick Pattern Example

In the description above, we have explained that a doji pattern happens when an asset opens and closes at the same level. Therefore, because of this description, the pattern is often confused with spinning top. Bearish Long-legged Doji illustrationIf the closing price is right in the middle, it could be considered a trend continuation pattern. In this case, one can always refer to previous candles to predict future trends. The size of the dragonfly coupled with the size of the confirmation candle can sometimes mean the entry point for a trade is a long way from the stop loss location. A spinning top also signals weakness in the current trend, but not necessarily a reversal. A doji names a trading session in which a security has an open and close that are virtually equal, which resembles a candlestick on a chart.

Is the Doji bullish or bearish?

It is both a bullish and bearish pattern. It depends on the direction of the asset. If it forms a doji during an uptrend, it is a bearish and vice versa.