Forex TradingThe Doji Candle Pattern Demystified: A Beginner’s Guide to Trading Cryptocurrencies

Think of this candlestick as a sign that something is about to happen, and it’s your job to wait for other participants to make up their minds. The size of the doji’s tail or wick coupled with the size of https://www.bigshotrading.info/ 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.

The pattern’s name describes the candlestick’s opening and closing prices, which are nearly identical, resulting in a small body with a long wick. The unique shape of the Doji candle pattern is what makes it distinct from other candlestick patterns and is the reason it has been named the Doji candlestick pattern. Trades based on Doji candlestick patterns need to be taken into context. For example, a Standard Doji within an uptrend may prove to form part of a continuation of the existing uptrend. However, the chart below depicts a reversal of an uptrend which shows the importance of confirmation post the occurrence of the Doji.

Fibonacci and Doji Strategy:

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. Then when the bears are unable to hold the price lower, what does doji mean the bulls push prices back to their opening levels. Remember, it is possible that the market was undecided for a brief period and then continued to advance in the direction of the trend.

The appearance of a gravestone doji is like an inverted letter “T”, with the open, low, and closing prices all pretty much similar. This means that the body appears at the lower end of the candle with a long upper shadow above it. Due to their appearance of a star, each of these dojis are sometimes referred to as a doji star. They are generally seen as the most neutral of all the doji candles, as the closing and opening price are equidistant from the highs and lows of the candle. The multiple dojis are simply highlighting more-extended indecision.

How to Trade the Doji Candlestick Pattern

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. Doji and spinning tops show that buying and selling pressures are essentially equal, but there are differences between the two and how technical analysts read them. In Japanese, “doji” (どうじ/ 同事) means “the same thing,” a reference to the rarity of having the open and close price for a security be exactly the same. Depending on where the open/close line falls, a doji can be described as a gravestone, long-legged, or dragonfly, as shown below. Start your research with reviews of these regulated brokers available in , many have free demo accounts so you can preview their technical analysis features. In Chart 3 above (doji B), the doji moved in the opposite direction from the movement shown in Chart 2.

• Traders need to comprehend different chart patterns and what they signify in addition to analyzing and identifying trends.
• While the traditional Doji star represents indecisiveness, the other variations can tell a different story, and therefore will impact the strategy and decisions traders make.
• 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.
• The doji shows that some indecision has entered the minds of sellers.
• The dragonfly doji is not a common occurrence and it is not a reliable tool for spotting most price reversals.

The creation of the doji pattern illustrates why the doji represents such indecision. After the open, bulls push prices higher only for prices to be rejected and pushed lower by the bears. However, bears are unable to keep prices lower, and bulls then push prices back to the opening price.

Types of Doji Candlestick Pattern:

In Japanese, the meaning of Doji is “mistake”, which refers to the fact that having equal opening and closing prices is unlikely or only happens rarely. 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 Chart 3 above (doji B), the doji moved in the opposite direction from the movement shown in Chart 2.
• The Doji pattern suggests that neither buyers or sellers are in control and that the trend could possibly reverse.
• It will also cover top strategies to trade using the Doji candlestick.
• The long-legged doji didn’t cause the reversal, but it did foreshadow the consolidation or indecision present in the market before the reversal higher.