The Complete Guide to Doji Candlestick Pattern

A dragonfly doji is a candlestick pattern that signals a possible price reversal. The candle is composed of a long lower shadow and an open, high, and close price that equal each other. The Doji candlestick has virtually the same opening and closing prices.

For example, during an uptrend, the price is getting pushed higher and the close of most periods is above the open. The long-legged doji shows there was a battle between the buyers and sellers but ultimately they ended up about even. This is different than the prior periods where the buyers were in control.

A candle’s real body generally represent up to 5% of the size of the entire candle’s range to be a Doji candlestick pattern. The prior trend and Doji pattern regulate the future direction meaning of doji of the trend. When the supply and demand factors are at equilibrium, then this pattern occurs. The trend’s future direction is regulated by the prior trend and Doji pattern.

Govind is an enthusiastic Management student, pursuing BBA from Christ University. Although the gravestone Doji candlestick is uncommon, you must be cautious when identifying one when you see one. The market’s lengthy upward shadow shows that it was looking for and finding the upper resistance level. The bulls attempted to drive the price higher, but a big selling binge ultimately prevailed, completely rejecting the upward trend.

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  • The emergence of a decline could indicate the continuance of the trend or a shift to a sideways movement and market range.
  • The presentation of the Gravestone Doji at the top of an uptrend signals the conclusion of the trend, and the upswing is most certainly over.
  • The first doji outlined on Chart 1 in the previous section was a high-low doji, where prices made the highs for the day first, and the lows for the day second.
  • It is very close to a plus sign and has open and close very close to each other.

The Doji candlestick pattern can lead to high profits in trading. When the supply and demand factors are equal, the pattern tends to be formed at the end of an uptrend. Since a Doji is often formed during an uptrend or downtrend, it is considered a possible indication of a trend reversal. The versatility of this candlestick pattern is appreciated by all types of traders for different time frames.

The isolated Doji candlestick pattern is neutral and not a confirmation of possible trend reversal. The pattern forms at the top or bottom of the trend when a candle’s opening and closing are the same or almost the same with small shadows on both sides. In Fact, when you merge price patterns with indicators and trade parameters like support & resistance, the accuracy will increase significantly. The best way to trade these Doji patterns is to look for them at the end of a pullback in a trend. In an up-trending market, look for the Dragonfly Doji, Morning Doji Star, Harami Cross, or Inside Bar when the price pulls back to a support level. Here, those patterns are more likely to be the beginning of a new upswing, so you are looking to go long.

The Doji candlestick chart pattern is among the formations that are considered unique and rare. In this blog, we are going to discuss all that a trader should know about Doji candlesticks. 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. Dojis are formed when the price of a currency pair opens and closes at virtually the same level within the timeframe of the chart on which the Doji occurs.

The Doji candlestick is one of the tools used widely for Technical Analysis. It is also challenging to estimate the potential reward as the candlestick fails to provide any targets. But, if you take it into context with the earlier price action, you’ll have a sense of what the market is likely to do with the doji pattern.

Understanding the Long-Legged Doji

When we look at the real examples, you will see how any trader can make a mistake of misreading it. There are multiple ways to trade a long-legged doji, although trading based on the pattern is not required. The pattern is only one candle, which some traders feel is not significant enough, especially since the price didn’t move much on a closing basis, to warrant a trade decision. The long-legged doji is a candlestick that consists of long upper and lower shadows and has approximately the same opening and closing price. Cory is an expert on stock, forex and futures price action trading strategies.

meaning of doji

The Doji candlestick is formed when the price opens and closes around the same level, even after trading higher or lower or both direction during the trading session. What it means is that the price couldn’t find equilibrium at any other level aside from the open price. First off, both SMA and EMA are some of the best indicators for 1 minute chart. The Simple Moving Average tracks the average closing price of the last number of periods. For example 50 day SMA will indicate the average closing price of 50 trading days, where all of them are given equal weight in the indicator. Gravestone Doji is a reversal stock trading pattern which can be bearish as well as bullish based on the position of Gravestone Doji candlestick.

One has to take into account other lead indicators, preferably the support and the resistance levels. 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. Often, you can see the Doji Candlestick pattern at the bottom of trends, and it is mainly considered as a sign of possible reversal of price direction.

Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. You should consider whether you can afford to take the high risk of losing your money. The direction of the prominent trend may change; however, the longevity of the new direction cannot be guaranteed.

Logically trade in the direction of the breakout of the next candle. The Dragonfly Doji, long-legged Doji, Gravestone Doji, star Doji, and hammer Doji are some of the types of Doji in stock market. Additionally, because a Doji is not a common occurrence, it is not a reliable indicator of price reversals. There is no certainty that the price will continue in the expected direction after the confirmation candle.

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While some traders may act on the one-candle pattern, others want to see what the price does after the long-legged doji. The Dragonfly Doji is more like the bullish pin bar , while the Gravestone Doji acts like the Shooting Star pattern. With this strategy, the trader aims to capitalize on the bid-ask spread by putting out a bid and making an offer for the same stock at the same time. This strategy is best employed with stocks that are not showing any real-time price changes. However, keep in mind that you must wait for confirmation before acting.

The dragonfly doji forms when the stock’s open, close, and high prices are equal. It’s not a common occurrence, nor is it a reliable signal that a price reversal will soon happen. The dragonfly doji pattern also can be a sign of indecision in the marketplace.

meaning of doji

A long-legged doji signals indecision about the future direction of the underlying security’s price. A pullback to the upside is followed by a tombstone, which signifies the end of the higher pullback. After the Gravestone Doji, the price drops, confirming that the bears have regained control. Before acting on any signals, including the Doji candlestick chart pattern, one should always consider other patterns and indicators. It means that there was no price movement all through the trading session — complete indecision. Sometimes called a “Rickshaw Man”, the long-legged Doji is like the standard Doji but has very long upper and lower shadows.

Best Trading Strategy For All 5 Types of Doji Candlestick Pattern

It reflects indecisiveness in the market hence there is no real body in the candle. The length of the shadows can vary and so the size of the entire candle. According to various shapes and sizes, there are four types of Doji. As with stocks and other securities, the formation of a doji candlestick pattern can signal investor indecision about a cryptocurrency asset. This is particularly true when there is a high trading volume following an extended move in either direction. Long-legged doji candles are deemed to be most significant when they occur during a strong uptrend or downtrend.

Consider a market situation when buying trends are strong, but some traders also anticipate the ongoing trend to reverse; hence they sell. But when it is not strong enough, the market can reflect indecision. Traders keep a lookout for such moments to predict when market trends might switch. Although rare, a doji candlestick generally signals a price reversal indication for analysts.

meaning of doji

The Long-Legged Doji looks more like a Christian cross that could even appear as an inverted cross in the chart patterns. Long Legged Doji shows that there were extreme highs and/or lows creating long wicks in the candlestick pattern. A doji could be formed by prices moving lower first and then higher second. The creation of the doji pattern illustrates why the doji represents such indecision.

#7: 3 Powerful Doji Candlestick patterns

Although a doji can indicate that a reversal of price direction is in progress, it can also be a continuation pattern where prices hover at their current value. The Gravestone doji and the Dragonfly doji are stronger indicators of price reversal than a standard doji. Gravestone Doji (which looks like an inverted “T”) signifies that a stock or other financial asset opened and closed at the day’s low. The pattern normally forms at the bottom or end of a downward trend. We need to pay special attention to a doji when it forms in an otherwise strongly trending market.

Candlestick Guide: How to Read Candlesticks and Chart Patterns

A hollow candlestick is formed when a stock closes higher than it opened. If the stock closes lower, the candlestick’s body will be filled. The chart below shows two doji forming near a support/resistance line.

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