What is Doji?
The Doji is a candlestick that occurs when the market opens and closes at the same price.
The high and low of the Doji may vary but what remains constant is the opening and closing price being the same.
The open and close price being the same means market indecision; that buyers and sellers are in equilibrium.
Everyone tells you that the Doji represents market indecision only, but is that really so?
In this post, you will get to understand the various variants of the Doji, what they mean, and then how to trade them.
This is the professional guide to the Doji candlestick patterns.
Saddle up for a rollercoaster
The Standard Doji.
The standard Doji is a neutral candlestick.
It has the same open and close price and short wicks, which perfectly portrays market indecision.
But no, it is not just market indecision, there is more.
You want to be able to trade that candlestick pattern, don’t you?
If you were to trade the standard Doji then, you must incorporate the context in which the candlestick forms.
You must consider the price movements preceding such a candlestick, and doing so will give you a clear picture of the market in order to get a direction to trade towards.
Has the price been rising and then a standard Doji forms?
Such means that the market, at the time the standard Doji forms, is resting temporarily.
Once the rest is over, the market will tend to resume the uptrend and so trading up would be wise.
If the market has been on a downtrend, then a standard Doji will mean a temporary equilibrium.
The market will resume the downtrend once the rest is done and so trading down will be profitable.
Make no mistake of thinking that a standard Doji means a reversal in the current trend.
You will suffer serious losses.
The Dragonfly Doji.
The Dragonfly Doji is a candlestick with the same open and close price and a long lower wick.
It may actually have a small body and the same long lower wick.
The Dragonfly Doji is a bullish candlestick.
It means that when the market opens, sellers fight to push the price down.
However, buyers set in and fight back pushing the price back up so that it closes at the same upper level where it opened.
The fact that the price lowers and is pushed back up to the same level as the open is a sure sign of buyer strength.
That is a signal that the market will tend to move up.
The Dragonfly Doji is best traded in conjunction with a support level or a strong uptrend (upward price bounce from moving average).
What do I mean?
If the price has hit a support level and a Dragonfly Doji forms at that level, then it is a sure signal of a price rise.
Additionally, if the price is in a strong uptrend and hits a moving average from above, then forms a Dragonfly Doji, it will bounce back up and rise.
Trade up in both scenarios.
The Gravestone Doji.
The Gravestone Doji is a candlestick with the same open and close price and a long upper wick.
It may actually have a small body and the same long upper wick.
The Gravestone Doji is a bearish candlestick.
It means that when the market opens, buyers fight to push the price up.
However, sellers set in and fight back pushing the price back down so that it closes at the same lower level where it opened.
Also Read: – HOW TO TRADE PULLBACKS IN OLYMP TRADE LIKE A PRO.
The fact that the price rises and is pushed back down to the same level as the open is a sure sign of seller strength.
That is a signal that the market will tend to move down.
The Gravestone Doji is best traded in conjunction with a resistance level or a strong downtrend (downward price bounce from moving average).
What does that mean?
If the price has hit a resistance level and a Gravestone Doji forms at that level, then it is a sure signal of a price fall.
Additionally, if the price is in a strong downtrend and hits a moving average from below, then forms a Gravestone Doji, it will bounce back down and fall.
Trade down in both scenarios.
The Long-Legged Doji.
The Long-Legged Doji is a candlestick with the same open and close price, then long upper and lower wicks.
This is to mean market indecision after a tussle between buyers and sellers.
The fact that the price rises and are forced back down by sellers, to a level lower than the open and then pushed up by buyers to the level of open, hints to a fall in market volatility.
Now that market volatility has fallen, the market will tend to range after the Long-Legged Doji.
It also will have the potential to break out later.
That means that you can draw ranges from the time you spot the Long-Legged Doji and then trade the range and the eventual breakout.
Draw the upper limit of the range at the high of the Doji and the lower limit at the low of the Doji.
After that, observe how the price behaves.
If it tends to reverse at the lower and upper limits, buy at the lower limit and sell at the upper limit.
Be keen to see if a breakout occurs.
If it does, allow a successful retest of the broken level, after which you should trade in the direction of the breakout.
The Four-Price Doji.
The Four-Price Doji is a candlestick where the open, close, high, and low prices are the same.
It is basically a horizontal line without any wicks.
The price did not change at any given time during the lifespan of the candlestick.
The Four-Price Doji hints at extremely low trading volume and liquidity.
Who then would want to trade when trading volume and liquidity are extremely low?
Nobody of course.
If you spot such a candlestick then, stay out of the market.
Do you still think that the Doji means market indecision and you should not trade when you spot it? You tell me.
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