The Complete Guide to Doji Candlestick Pattern

what is a doji candle

The Double Doji strategy looks to take advantage of the strong directional move that unfolds after the period of indecision. A Gravestone Doji is the opposite of a Dragonfly Doji, showing the open and close price around the same level as the low price with a long upper wick. The blue arrows point to the open and close prices in the chart below, while the purple arrows indicate the high and low prices.

what is a doji candle

The term gravestone doji refers to a bearish indicator commonly used in trading by technical analysts. A gravestone doji is a bearish reversal candlestick pattern that is formed when the open, low, and closing prices are all near each other with a long upper shadow. The long upper shadow suggests that the bullish advance at the beginning of the session was overcome by bears by the end of the session. As with the dragonfly Doji and other candlesticks, the reversal implications of gravestone Doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, the focus turns to the evidence of buying pressure and a potential bullish reversal.

How to trade the Dragonfly Doji in a range market

Below, you can see the support and resistance levels in the H4 timeframe; I also marked the local high. And there won’t be any meaningful patterns for you to trade in this market condition. A Four-Price Doji occurs when the open, close, high and low prices are the same. A Gravestone Doji occurs when the open and close is the same price but, with a long upper wick. In a strong trend or healthy trend, a doji candle is likely to “bounce off” the Moving Average. In the next section, you’ll another type of Doji that signals the market is about to bottom out.

In addition, the dragonfly doji might appear in the context of a larger chart pattern, such as the end of a head and shoulders pattern. It’s important to look at the whole picture rather than relying on broker finexo any single candlestick. The candle following a potentially bearish dragonfly needs to confirm the reversal, which means, the candle following must drop and close below the close of the dragonfly candle.

  1. However, used as part of a broader reading of market conditions, they can help anticipate changes in trends or prompt a trader to undertake a more detailed analysis to decide when to trade.
  2. Candlestick patterns are like building blocks in understanding how the stock market behaves and how prices might change.
  3. In addition, the dragonfly doji might appear in the context of a larger chart pattern, such as the end of a head and shoulders pattern.
  4. 💜If you appreciate our charts, give us a quick 💜 Doji candlesticks, with their equal or nearly equal open and close, offer crucial insights into market indecision.
  5. Dragonfly Doji indicates that sellers dominated trading and drove prices lower during the session.

While a Doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji conveys a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session but close at or near the opening level. Neither bulls nor bears were able to gain control and a turning point could be developing. The doji candle is a neutral pattern; it can be either bullish or bearish. The character depends on the doji type and the place where it emerges.

The stronger the rally on the day following the bullish dragonfly, the more reliable the reversal is. Different assets have different criteria for determining the robustness of a Doji. Determining the robustness of the Doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the Doji should have a very small body that appears as a thin line.

Is Doji a reversal pattern?

Now, don’t worry if you don’t have the answers to these questions with regard to the doji pattern. At the opening bell, bears took a hold of GE, but by mid-morning, bulls entered into GE’s stock, pushing GE into positive territory for the day. Unfortunately for the bulls, by noon bears took over and pushed GE lower.

what is a doji candle

The doji candlestick chart pattern is a formation that occurs when a market’s open price and close price are almost exactly the same. There are different variations of the pattern, namely the common doji, gravestone doji, dragonfly doji and long-legged doji. A doji formation generally can be interpreted as a sign of indecision, meaning neither bulls nor bears can successfully take over. Of its variations, the dragonfly doji is seen as a bullish reversal pattern that occurs at the bottom of downtrends. The gravestone doji is read as a bearish reversal at the peak of uptrends. There are many ways to trade the various Doji candlestick patterns.

A candlestick chart, a common trading chart, has a unique pattern called a Doji. It stands out due to its brief duration, which denotes a constrained trading range. The brief duration suggests that there are little to no differences between the traded financial asset’s opening and closing values.

Doji Formations: Learn How to Interpret Them to Help Trading Strategies

By themselves, Doji candles aren’t the most powerful indicators of any given movement. However, used as part of a broader reading of market conditions, they can help anticipate changes in trends or prompt a trader to undertake a more detailed analysis avatrade review to decide when to trade. But, if you take it into context with the earlier price action, you’ll have a sense of what the market is likely to do with the doji pattern. If you don’t have a live trading account , you can open one quickly and easily.

DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material. This article explains what the Doji candlestick is and introduces the five different types of Doji used in forex trading. It will also cover top strategies to trade using the Doji candlestick.

How to Trade the Bullish Harami Candles

The 4-Price Doji has no wick, just an open and close price, which also indicates the high and low price for the session. A 4-Price Doji is extremely rare in high-volume markets, as it indicates that there was virtually no price movement during the session. If there has been trading volume, it means that market participants are highly indecisive about price direction.

The long-legged doji shows there was a battle between the buyers and sellers but ultimately they ended up about even. This is different than the prior periods where the buyers were questrade forex review in control. In addition, there is a type of candlestick with a small body and one or two very long shadows. The Japanese call such candlesticks “loss of sense of direction.”

If you prefer, you can also look for the doji chart pattern and practise trading using a risk-free demo account. The vertical line of the doji pattern is called the wick, while the horizontal line is the body. The wick can vary in length, as the top represents the highest price, and the bottom represents the low. The body represents the difference between the opening and closing price.

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