The Doji candlestick chart pattern, also known as the “Doji candlestick,” is one of the most unique patterns in the trading world. In this guide, we will learn about Doji candlestick patterns, Doji candlestick meanings, and Doji candlestick trading strategy!
There are several types of doji candlesticks that can appear on a chart. The type of candlestick is determined by where the doji candlestick forms, each providing different information to the trader. A doji candlestick can look like a plus sign, a T, or an inverted T. In certain contexts, a doji candlestick can indicate that the price is close to a high or low. At other times, a doji candlestick can mean that the price is likely to move sideways. Where a doji candlestick forms within a trend is key to interpreting it.
What is a Doji candle?
The word “Doji” in Japanese means “at the same time.” It depicts time frames when the closing price is the same as the opening price.
Doji candlesticks are among the most important single candlestick patterns according to Steve Nison, the founder of Japanese candlestick patterns, and the Doji candlestick can also be an important component of other reversal candlestick patterns.
A Doji candlestick is formed when the opening and closing prices of a financial asset (stock, cryptocurrency, commodity, or forex pair) are approximately equal. The length of the upper and lower wicks of the candlestick can vary, and the resulting candlestick looks like a cross, inverted cross, or plus sign. A Doji candlestick is a neutral pattern. Its direction depends on past price action and future confirmation. The word “Doji” refers to both singular and plural.
Ideally, but not necessarily, the open and close should be close together. While a Doji candlestick with the same open and close is more powerful, where the Doji candlestick appears on the chart is very important. A Doji candlestick conveys a sense of indecision or tug of war between buyers and sellers. Prices move above and below the open during the session but close at or near the open. The result is a standoff. Neither the bulls (buyers) nor the bears (sellers) have been able to gain control and accordingly the Doji candlestick formation can be a trend reversal zone.
Different assets have different criteria for determining the strength of a Doji candle. Determining the strength of a Doji candle is based on recent price and volatility and previous candles. For previous candles, a Doji candle should have a very small body that appears as a thin line. Stephen Nison notes that a Doji candle that forms among other candles with short real bodies will not be considered significant. However, a Doji candle that forms among candles with long real bodies is more significant.
How is a Doji candle formed?
The significance of a Doji candle depends on the previous trend or candles. A red Doji candle in a downtrend after a long green candle (bullish candle) indicates that buying pressure is starting to wane. A green Doji candle in an uptrend that forms after a long red candle (bearish candle) indicates that selling pressure is starting to diminish. A Doji candle indicates that the forces of supply and demand are becoming more balanced and a change in trend may be imminent. A Doji candle alone is not enough to signal a trend reversal and further confirmation is needed.
As we said, a red doji candle in a bearish trend that forms after a long green candle indicates that buying pressure may be waning and that the uptrend is nearing its end. While a financial asset can simply decline due to a decrease in buyers, continued buying pressure is required to maintain the uptrend. Therefore, a doji candle may be more important after an uptrend or a long green candle. But seeing a doji candle is not enough to confirm a trend reversal. For the scenario to be successful, a price gap down, a long red candle, or a bearish candle must form that reaches below the opening price of the long green candle. Forex traders should be on the lookout for an evening star pattern.
A green doji candle in an uptrend that forms after a long red candle indicates that selling pressure may be waning and the downtrend may be nearing its end. Although the bears may be losing control of the decline, further confirmation is needed for any reversal. Bullish confirmation could come from a price gap to the upside, a long green candle or price advancing above the opening price of a long red candle. Traders should be alert for a possible morning star pattern.
Doji candle technical analysis
Technical analysis is the study of chart patterns and price movements to determine where an asset’s price might go next. Technical analysis helps provide information for profitable trading. Before analyzing doji candlesticks, traders may ask themselves some questions related to the context of candlestick trading:
What happens on a candlestick chart before a Doji candle forms?
Does the price move up only in an uptrend?
Is the price moving down within an overall uptrend (known as a reversal)?
Is the price in a downtrend? Is the price in a downtrend?
Is the price moving sideways or in a triangle pattern?
Is the Doji candle close to support or resistance?
Answering these questions can provide insight into where the price of an asset might move after a doji candle. Technical analysis can be used when analyzing doji candlestick patterns to indicate potential trading opportunities. Now that we know some of the technical analysis concepts and questions to consider, we will look at the different types of doji candlestick charts and discuss some ideas on how to trade them.
Learn how to read Japanese candlestick charts in more detail.
Doji Candle Types - Doji Candle Shapes
Some common doji candlestick chart patterns include the dragonfly candlestick, the gravestone candlestick, the long doji candlestick, and variations. Each has a slightly different shape, which we discuss in more detail below.
✔️ Long-Legged Doji Candle
✔️ Dragonfly Doji Candle
long legged candle
A dragonfly candlestick is formed when the opening price is equal to the closing price with a long lower wick. The resulting candlestick looks like a “T” because it does not include an upper wick. A dragonfly candlestick indicates that sellers took control of the trade and drove prices lower during the session. By the end of the session, buyers re-emerged and pushed prices back to the opening level and the session high.
Dragonfly candlestick reversals depend on past price action and future confirmation. A long lower wick provides evidence of buying pressure, but a decline indicates that plenty of sellers are still lurking. After a long downtrend (long red candle) or at support, a dragonfly candlestick can signal a potential bullish reversal. Or a bearish reversal after a long uptrend (long green candle) or at resistance. In both cases, confirmation of the downtrend or uptrend is needed.
✔️ Gravestone Doji Candle
A gravestone candlestick is formed when the opening price is equal to the closing price with a long upper wick. The resulting candlestick looks like an inverted “T” because it does not have a lower wick. A gravestone candlestick indicates that buyers took control of the trade and pushed prices higher during the session. However, at the end of the session, sellers re-emerged and pushed prices back to the opening and session lows.
As with other dragonfly and doji candles, Tombstone candle reversals depend on past price action and future confirmation. Although a long upper wick indicates a failed rally, evidence of some buying pressure. After a long downtrend (a long red candle) or at support, a Tombstone candle can indicate buying pressure and a potential bullish reversal. After a long uptrend (a long green candle) or at resistance, a Tombstone candle indicates selling pressure and a potential bearish reversal. In both cases, confirmation of the downtrend or the uptrend is needed.
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