Doji candlestick pattern

A doji is a candlestick that has equal or nearly equal opening and closing prices. There should also be shadows on both sides of the candlestick that are about the same size.

A doji indicates an agreement between buyers and sellers, or the absence of players, or a testing of a level. This formation can either be a reversal formation or it can lead to a continuation of the trend. We can say that the doji is the yellow color of a traffic light.

How to trade doji?

Doji candlestick pattern can be taken as a reversal signal only in one case. If the following conditions are met (simultaneously):

1. The doji was preceded by a strong, clear, clearly visible long-term trend.

2. Before the doji there was a full-body candle of medium or large size (relative to the current chart) in the direction of the trend.

3. there is a confirmation, where after the doji there was a candle opposite to the dominant trend.

Only in the presence of these three conditions, we can consider an entry against the trend after the doji appears. In all other cases, the doji is simply ignored.

Stop Loss is placed behind the doji's extreme point, Take Profit — at the nearest support/resistance level. Since the doji pattern is not a strong pattern, we do not take big targets.

Important points about doji

— A support/resistance level is highly desirable, as with any Price Action set-up;

— The maximum of the Doji is a level, the break of which will mean that the trend is still in force;

— Other timeframes should not be overlooked;

— On small scales (less than 1H) the doji means NOTHING;

— Always wait for confirmation;

— If the market is moving horizontally, just ignore the doji;

— Only the FIRST doji is important;

— Short shadows are desirable for reversal.

Conclusion

You can trade on doji only if you fulfill 3 conditions at the same time: a clear trend, a full-body candlestick in the direction of the trend before the doji, a confirming candlestick against the trend after the doji.

By admin:@Future Bull

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