Learn the Doji Candlestick Pattern, and how to Trade With It
Imagine a market where buying trends are strong but traders anticipate the continuing trend to reverse and sell. What happens in this scenario? The market will collapse if all traders go on a selling spree. The market can also reflect indecision if it isn't strong enough. These moments are important for traders to be able to spot when market trends could change. How can you tell if it will happen by simply looking at a chart. Technical traders are looking for Doji candlestick patterns in the trading charts.
Doji candlesticks are part of the Japanese candlesticks chart family. The unique shape of the Doji candlestick is what gave it its name, which means indecision. We'll explain what a Doji candlestick looks like and how to stand up when you spot one.
Candlestick charts are an trading indicator that was invented by rice traders in 17th-century Japan. These patterns were used to predict price movements and trade. Today's traders employ a wide variety of candlestick patterns. Doji is just one. Doji is Japanese for mistake or blunder. It is often seen in an uptrend or downtrend and signifies equality between bearish and bullish trends.
How do you recognize a Doji candlestick? It looks like a star or cross, so the Doji Star name.
Doji is different from other candlestick patterns in that it doesn't have a body. They have the same opening and closing values, but they have different high and lower. A "Rickshaw Man" is a long-legged Doji with long shadows and long upper and lower edges.
A Doji can be formed in either an uptrend or a downtrend and is therefore considered to be a sign of a trend reversal.
Doji candlesticks come in many different forms. Each one has its own interpretation and features. Let's take a look at each one.
Doji Star It appears like a star with equal opening and closing values and equal length upper wicks and lower wicks. It is when neither a bullish nor a bearish trend is strong enough to influence market sentiment.
A Doji star with extended lower and upper wicks. It also represents indecisive sentiment and higher volatility.
Dragonfly Doji You will find it at the bottom a downtrend. This signifies that you reject a lower price. Dragonfly is not indicative of market indecision, unlike Doji Star or Long-legged Doji. It signals an upward trend reversal. A Dragonfly is easily identifiable by its distinctive appearance. It has no body and a long bottom wick.
Gravestone Doji- Gravestone Doji is on the opposite side of the spectrum from Dragonfly Doji. It is most common during an uptrend and shows market rejection for a lower price. It is a Doji candle with no real body and an extended upper shadow.
4-price Doji This is a horizontal line that represents ultimate indecision on the market. This pattern is visible when the market is open or closed, high and low are equal.
What should you do if a Doji appears on a candlestick charts? It doesn't matter if you are an experienced trader or a novice, it can be difficult to take a position in market uncertainty. To avoid making mistakes, it is possible to prepare yourself with knowledge. Doji is not a sign of a trend reversal. However, a Doji can be combined with other candles from a chart to confirm a change of trend.
Each candlestick is made up of four parts: an opening and closing and the high and low price for that day. It will help you to see the price movement of an asset by simply looking at it. The body is the result of the opening and closing prices. The actual body of the candle will be longer if there is a greater difference between closing and opening prices. The stock's highest and lowest prices create shadows and wickers on either side.
Technical traders often interpret Doji candles as indicating a trend reversal. They choose to 'pause' and reflect to find more convincing patterns. If a Doji candlestick appears in an uptrend, it could indicate that buying momentum has slowed down. It can also indicate that the market is in a momentary state of indecision. The market could continue moving in the same direction afterward. If you base your strategy on a single Doji pattern, it is possible to make a mistake.
Doji and Spinning Tops are very similar in their nature and feature. They represent market indecision. Doji is a candlestick whose real body is less than 5 percent of its total dimensions. Otherwise, it's referred to as a Spinning Top. Before you plan entry or exit, make sure to look out for Bollinger Bands when either of these indicators appears on a trading chart.
Candlestick charts are used by technical traders to reduce market noise and understand price movements. Candlestick charts are not indicative of any changes, just like other tools. Doji also has its limitations. The isolated Doji candlestick pattern does not indicate a trend reversal. Changes in sentiment can be revealed by the size and pattern of Dojis, as well as where they were formed. Double Doji patterns are also a reliable indicator of a trend shift according to some traders.