Candlesticks Charts & Patterns
Doji is the next type of candlestick pattern that we will learn in the section. A Doji can be formed in different ways. Let's see how.
What is a Doji candlestick pattern?
A Doji is a candlestick pattern that resembles a cross as the opening price and the closing prices are equal or almost equal. It reflects indecisiveness in the market hence there is no real body in the candle. The length of the shadows can vary and so the size of the entire candle. According to various shapes and sizes, there are four types of Doji.
- Standard Doji
- Long legged Doji
- Dragonfly Doji
- Gravestone Doji
What is the psychology behind the pattern?
This candlestick pattern is formed when the market opens, bullish traders try to push prices up whereas the bearish traders reject and push it back down. It could also be that bearish traders try to push prices as low as possible, and the bulls fight back and push the price up.When looked at the Doji Pattern in isolation, it depicts that traders that neither buyers or sellers are gaining – it’s a sign of indecision, or neutrality. Some traders believe that the Doji indicates an upcoming price reversal when viewed alongside other candlestick patterns. After a strong uptrend or a downtrend, a Doji formation accompanied with high volumes is a possible sign of reversal. There are times when it could signal that buyers or sellers are gaining momentum for a continuation trend. Normally these Doji’s indicate markets are tired, and want some rest. Volumes are low in these candles. The size of the candles is also comparatively small.
A trader should always look for signals that complement what the Doji candlestick is suggesting in order to execute higher probability trades. Logically trade in the direction of the breakout of the next candle. On the next candle if the high or the low of Doji is breached, take the trade in that direction, keeping the other end as the stoploss.