Complete Guide To Doji Candlestick Patterns – Top 2023 Update
Doji candlestick patterns are the most common candlestick patterns used by professional traders to confirm price action and forecast the next price move.
Significance of doji candlestick patterns is significantly increases by occurrence of these patterns at crucial support and resistance levels along with fib retracement levels.
In this article we are going to discuss in detail about every doji candlestick pattern and how to use them in trading.
Table of Contents
- How to Identify a Doji?
- Meaning of Doji Candlestick
- Types of Doji
- Double Doji Candlestick Patterns and their meanings
- Difference between Doji and other Candlesticks:
- How to trade with Doji Candlestick Patterns:
- Top 4 Most Reliable Candlestick Patterns with Doji
- Combining Doji Candlestick Patterns with other Technical Tools:
- When Should You Not Use Doji Candlestick Patterns?
- Conclusion
- Frequently Asked Questions:
How to Identify a Doji?
To recognize Doji candlesticks, the opening and closing price should be the same. A horizontal line represents it. There should be no actual body present.
Doji candlesticks indicate the trading range of a time period by a vertical line, using upper, lower, or both shadows.
Meaning of Doji Candlestick
The vertical line of a Doji candlestick indicates the volatility of traders within a specific time period.
Doji candlesticks not only signify market indecision, but they may also indicate the diminishing momentum of an ongoing trend.
For example, if a Doji pattern appears after a prolonged downtrend, it indicates that the seller’s conviction is fading.
Types of Doji
1. Standard Doji
A Standard Doji (or Doji Star) is a single candlestick that has limited significance on its own. By looking at the dominating trend, this candlestick formation may suggest an upcoming market direction reversal.
How to Spot
The same opening and closing price.
Lower and upper wicks are of the same length.
It appears to be a ‘plus’ symbol.
The above chart shows a price reversal movement after the formation of a typical Doji at the bottom.
2. Long Legged Doji
The formation of a long-legged Doji candlestick on a chart enables a trader to recognize uncertainty and probable direction shift.
How to Spot
The opening and closing price is shown as a horizontal bar.
High volatility causes the lower and upper wicks to be extended.
The close price is either above or below a vertical bar’s midway.
In this chart, after the pullback, a long-legged Doji indicated the bottom of the pullback, and the market then carried on with its trend.
3. Dragonfly Doji
A Dragonfly Doji candlestick appears, when the price opens, makes a prolonged low throughout the session, and then closes near the higher end of the trading period. Though this candlestick pattern can be used to signify a reversal, it is more likely to indicate a bullish reversal if it appears at the close of a downtrend.
How to spot
A horizontal bar near the wick represents the open and closing price.
An extended lower wick implies a high level of seller rejection.
The upper wick is either little or absent.
This candlestick has a T’ shape to it.
A Dragonfly Doji appears after a downtrend in this chart. A Dragonfly Doji indicates that the bulls’ supremacy entirely diminished the bearish movement as the momentum began to shift upwards.
4. Gravestone Doji
The opposite of a Dragonfly Doji, a Gravestone Doji appears when the price opens, establishes a prolonged high throughout the session, and then closes near the lower end of a trading period. A bearish reversal is more likely to occur if it forms at the end of an uptrend, or vice versa.
How to Spot
A horizontal bar near the lower end represents the opening and closing price.
An extended upper wick indicates high rejection of a trend. The lower wick should be small or non-existent.
This candlestick has the form of an inverted ‘T’.
The above price chart displays a Gravestone Doji formation near the uptrend, indicating severe buyers’ exhaustion. Thereafter, bearish candlesticks verified the trend reversal.
5. Four Price Doji
This form of Doji is identified by a horizontal bar with no lower or upper wick, indicating that the price did not move in either direction throughout the session. It denotes little market volatility, ensuing extreme indecision. It is rare to be seen in high volatile markets.
How to spot
The candle’s representation of the four prices (high, low, open, and close) is identical.
Market stillness is indicated by the absence of a wick.
The formation of a Four Price Doji near the bottom, followed by a bullish candlestick, indicated a trend reversal.
Double Doji Candlestick Patterns and their meanings
A Double Doji candlestick pattern is made up of two Doji candlesticks and represents a significant trend reversal or continuation. A double Doji candlestick pattern is observed near the close of the market trends and has a higher reversal potential than a single Doji.
A single Doji often represents indecision and the possibility of a reversal, but two successive Doji formations give a stronger signal that usually results in a major reversal or breakout.
How to Identify:
A Double Doji candlestick pattern can form in many pairs. Some of the most potent double Doji candlestick patterns, that frequently appear are as follows:
When two Doji candlesticks appear, the likelihood of anticipating future market movements increases. A long-legged Doji with a Doji star, for example, signals a trend reversal.
If two identical Doji candlesticks develop consecutively, a high probability setup can be formed (two gravestone Doji, for instance).
Because double Doji candlestick formation is uncommon, it is always prudent to combine them with other technical tools to boost the odds in your favor.
The formation of a double Doji near the peak of a downtrend (Lower High), together with a trend line, verified a trend continuation in the above chart.
Difference between Doji and other Candlesticks:
Other candlesticks with tiny bodies, such as Hammer, Spinning Tops, and Shooting Star, signal low volatility in the market.
Doji candlesticks, on the other hand, have no body, and their open and close lie at the same price, which causes uncertainty.
Doji can also signal the start of a consolidation phase prior to a reversal or continuance phase.
How to trade with Doji Candlestick Patterns:
Doji candlestick patterns can be used in various trading situations. To make high-probability trades, traders should look for additional technical tools to strengthen Doji candlesticks. Additionally, risk management is crucial while trading a Doji in order to reduce losses if the trade doesn’t appear to be advantageous.
For long entry, place a buy order above a Doji’s peak. Stop loss should be put below a Doji’s low.
For a short-selling entry, place a sell order below a Doji’s bottom. A Doji’s high should be used as a stop loss level.. Here’s an illustration:
Top 4 Most Reliable Candlestick Patterns with Doji
The candlestick patterns that, when paired with Doji candlesticks, offer reliable signs are listed below.
Combining Doji Candlestick Patterns with other Technical Tools:
Merging Doji candlestick patterns with price action tools may help a trader to spot potential market continuation or reversal areas.
Using RSI to trade Doji Candlestick Patterns:
Trend trading using Doji Candlestick Patterns:
When Should You Not Use Doji Candlestick Patterns?
Doji is a very common candlestick that may serve as a useful indicator to spot trend reversals or continuations at the end of uptrends and downtrends. Since it is simple to identify, its formation can sometimes result in fake market moves. Take a look at this:
Conclusion
⭐A Doji signifies neither bullish nor bearish sentiment. It indicates indecision.
⭐Support and resistance levels, as well as technical indicators, can assist a trader to comprehend what can happen after a Doji candlestick formation.
⭐A single Doji candlestick does not represent anything on its own. The formation of double Doji, along with price action, implies a substantial likelihood of a trend reversal or continuance.
⭐When a Doji candlestick appears, pay special attention to the candlestick’s prior price activity.
⭐In highly volatile markets, Doji candlestick patterns are prevalent. Indices and Forex are two such examples.
⭐If there are many Doji candlesticks in a row, the price action signals that the current trend is nearing its end and that a reversal would be imminent.
⭐Doji candlesticks reflect different aspects of the market. Some of them suggest indecision, while others aid in the identification of a continuing trend.
Author is Senior Technical AnalystAt Bulls Arena Trading
info@bullsarenatrading
New Delhi
India
Frequently Asked Questions:
What are the different types of Doji?
There are several Doji variations. However, Doji formation comes in 5 major types – Standard Doji, Long-legged Doji, Gravestone Doji, Dragonfly Doji, 4 price Doji.
Is Doji candlestick bullish or bearish?
A Doji candlestick is neither bullish nor bearish. It indicates market uncertainty or a pause. It has no real body.
What happens after a Doji Candlestick?
Doji often signals the exhaustion of a previous trend and the emergence of a new trend. Doji candlesticks can also indicate an upcoming market consolidation period.
How to identify Doji?
Doji can easily be identified since its opening and closing prices are the same. There should be no real body. The upper and lower wicks of a Doji represent the highest and lowest prices at which an asset has traded within a certain time period.
What is Dragonfly Doji Candlestick?
u003cbr /u003eIt is a bullish reversal pattern, followed by an uptrend price movement. Its structure is shaped like a u0022Tu0022 and can be used for buying opportunities.
What is Grave Stone Doji Candlestick?
It is a bearish reversal pattern, followed by a downtrend price movement. It is the opposite of Dragonfly Doji and can be used for selling opportunities.
What is Four-Price Doji?
This candlestick indicates extreme indecision since all four of its components (OHLC) remain at the same level.
What does Double Doji Candlestick mean?
A two-candle pattern in which two successive Doji appear. A price reversal or continuation is well indicated by it.
Read also :- Morning Doji Star Candlestick Pattern
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