What is the Doji Candlestick Pattern and How Do You Trade with It?

Doji Candlestick Pattern

A Long-legged Doji usually is a very huge candle that you see on your chart. There’s a good chance that it could break out and you want to be trading the breakout of the highs. So, in this case, the market came up higher into the area of resistance which is simply the highs of the Long-legged Doji.

What happens after a doji?

A bearish star doji occurs following an uptrend and looks like a plus sign. If the price moves lower after the candle pattern, this helps to confirm the doji star's bearish reversal. It is a “star” because its body must be above the prior candle's body.

The concept of these Doji Candlestick Patterns can be seen across different timeframes. Dragonfly Doji – A bullish reversal pattern that occurs at the bottom of downtrends. A doji could be formed by prices moving lower first and then higher second. Either way, the market closes back where the day started. In the image above, the Dragonfly Doji formed after a steep bearish decline. This type of Doji anticipates a trend reversal, and this happened in our example as well. Moreover, the Stochastic reached the oversold level after the bearish candle, which suggested that the Dragonfly was even more relevant.

Doji Candlestick Types

In the next section, you’ll another type of Doji that signals the market is about to bottom out. Mr. Pines has traded on the NYSE, CBOE and Pacific Stock Exchange. In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. After a long downtrend, like the one shown in Chart 1 above of General Electric stock, reducing one’s position size or exiting completely could be an intelligent move. In other words, the market didn’t move at all during the covered period.

Doji Candlestick Pattern takes no responsibility for loss incurred as a result of the content provided inside our Trading Room. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.

Engulfing Pattern

When the price moves higher for a while, the chart can form a Gravestone pattern. Which is an inverted Dragonfly Doji that precedes the reversal of an uptrend. Ultimately, the best way to trade the Doji is to wait for the next candlestick to break above its high or below its low. Assess the indications, then only make a final decision about opening a position or closing one. The same is true about the difference between Doji and the Shooting Star, which is aninverted hammerand thus a bearish reversal signal.

  • Each candlestick chart pattern says something about the strength of the buyers and sellers within this timeframe.
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  • On the contrary, if the closing price is right in the middle, it can be considered a trend continuation pattern.
  • Unless otherwise indicated, all data is delayed by 15 minutes.

Looking at the lower left of the price chart, we can see that prices were moving higher, forming an up trending market scenario. Towards the middle of the price chart, we can see a Double Doji pattern form, which is circled in green.

How much does trading cost?

The candlestick can be found on any timeframe for any asset. Although the candlestick doesn’t provide accurate trend reversal or continuation signals, it may be an alarm when the market is ready to turn around.

He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies. James Chen, CMT is an expert trader, investment adviser, and global market strategist. Our two-tiered exit strategy calls for placing a target at a length that is equivalent to the double Doji pattern projected lower from the breakout point. Notice how two candles following the breakout Exit 1 was reached providing us some profits on this trade. However, soon after Exit 1 was reached prices traded slightly lower, and then began to reverse to the upside. In this case, price immediately breaks lower on the very next candle following the double Doji formation.

Advantages of Doji candles

Once we’ve done that we would go ahead and wait until price either breaks above the resistance level or below the support level to enter into the position. We will be using a two-tiered target as an exit strategy which calls for the first exit to be taken upon price reaching an equivalent distance of the double Doji pattern. Notice the second orange bracket which represents Exit 1. Price easily reach this level and continued to move higher. Exit 2 can be seen just above Exit 1 and represents a length of twice the double Doji pattern.

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One thing to share first is don’t make this mistake when you’re trading the Doji candlestick pattern. And it’s really not too important to concern yourself whether there is a small body or no body on the candlestick pattern. One thing to take note is that a Doji has no body on the candlestick pattern. How to recognize it and how to find profitable trading opportunities using the Doji candlestick pattern. Because in this post, I’ll reveal the answers and teach you everything I know about the Doji candlestick pattern — so you can finally trade it like a pro. The content on this website is provided for informational purposes only and isn’t intended to constitute professional financial advice.

  • A Spinning Top is a Japanese candlestick with a small real body and long upper and lower shadows.
  • There are several types of candlestick patterns that traders use.
  • Still, when you notice a Doji candlestick, you should use other tools to confirm the reversal and enter below or above the lowest or highest level of the Doji candle.
  • They were introduced to trading by Steve Nison in the 20th century.
  • The gravestone usually indicates that the buyers are losing power because they can no longer drive the price up and the sellers are in control.

To explain what is a Doji candle, first of all, we should explain what these Japanese candlesticks are. However, before we give the concept of Japanese candlesticks, first of all, it is worth to understand the concept of technical analysis. In other words, let us start with the beginning and gradually get to the main point. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion.

Traders need to use some common sense and judgment when defining how much differential between the opening and closing price they will accept for identifying a valid Doji pattern. This is because the exact opening and closing price for any given session is quite rare, therefore, we have to make room for some leeway in this area. A series of Dojis and neutral candles on the PrimeXBT platform.

  • The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day’s body and closes in the opposite direction of the trend.
  • It’s worth noting that the Doji pattern doesn’t necessarily mean reversal or continuation but simply indecision.
  • Thus, when used alone, it doesn’t provide reliable signals.
  • The morning Doji star is a three-candlestick pattern that works in a strong downtrend.
  • We will be describing each of these Doji variations in the upcoming sections and illustrate the structure of each.

Welcome back to this training video where you will learn all about theDoji candlestick pattern. You’ll seldom see this candlestick pattern, but if you do, expect volatility to “die out” for a while before it picks up again. In a strong trend or healthy trend, a doji candle is likely to “bounce off” the Moving Average. If you do, you’ll never have to memorize a single candlestick pattern again. Gravestone Doji – A bearish reversal occurring at the top of uptrends. Nevertheless, a doji pattern could be interpreted as a sign that a prior trend is losing its strength, and taking some profits might be well advised.

Bearish Doji Candlestick Trade Setup – USDCAD is not liable for any damages arising out of the use of its contents. When evaluating online brokers, always consult the broker’s website. makes no warranty that its content will be accurate, timely, useful, or reliable. A single Doji is regarded as a good signal of indecision. However, two consecutive Dojis represent an even greater pattern that can lead to a strong breakout.