Doji Candlestick Pattern: What Is It and How to Trade with Doji?

So, for example, when Bitcoin (BTC) opens and closes at $20,000 on a particular day even if its price seesawed between $25,000 and $15,000 throughout the given24-hour period. Indecision reigns, as neither the buyers and sellers are in control. Doji and spinning tops show that buying and selling pressures are essentially equal, but there are differences between the two and how technical analysts read them. In Japanese, “doji” (どうじ/ 同事) means “the same thing,” a reference to the rarity of having the open and close price for a security be exactly the same. Depending on where the open/close line falls, a doji can be described as a gravestone, long-legged, or dragonfly, as shown below.

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Understanding the Long Legged Doji Candlestick

On the BTCUSD chart below, the entry could be below the two Doji lows and the Stop Loss above the two Doji highs. Again, you can go short on the next candle open, stop loss either above the high and then look to ride the move down lower. In this case, you notice that the highs and the lows of the Long-legged Doji actually became resistance and support on the lower timeframe.

Traders may place a stop loss below the bar with a take profit at the closest resistance level or may consider the risk/reward ratio. A doji Japanese candlestick is a formation that appears in the candlestick chart when the price movement has stopped, and there is market uncertainty. In the world of candlestick charts, there are two very similar-looking formations known as the Doji and the Spinning Top. Both occur when the opening and closing prices are very close together, resulting in a small body with long upper and lower wicks. Popularly known as the ‘doji candle’, the doji candlestick chart pattern is one of the most unique formations in the world of trading. Learn more about this pattern and find out how you can trade when you recognise it.

How to Trade the Dragonfly Doji

A Doji is an important pattern because it can provide valuable insights into market sentiment. Look closely to define which type of Doji it is — this step is very important. The name “Doji” comes from the Japanese word for “blunder,” which reflects that this formation typically occurs when traders make mistakes.

In short-term trading, one should take profit at the nearest support levels. More patient traders can wait until the price tests the resistance trendline to see where the price will go next. It is important to emphasize that the doji pattern does not mean reversal, it means indecision. Doji are often found during periods of resting after a significant move higher or lower. Traders should carefully monitor the candlestick’s closing price when identifying a potential long-legged Doji.

What happens after a doji candle?

For example, if the market is bullish overall, and a Doji candle appears, it signals a state of neutrality and indecision. This could mean that the trend is about to reverse, so a Doji candle represents one of the reversal patterns.The same is true in the opposite direction. If the market price is falling, and a Doji forms, it could mean that the drop has come to an end. A doji formation generally can be interpreted as a sign of indecision, meaning neither bulls nor bears can successfully take over.

You can even look at a couple of candlesticks, see the short-term range, and determine the directionality of the following trade based on a close outside of that range. The stop loss goes on the other side of the field, allowing you to have a mechanical and straightforward system. Instead, it simply signals that the market is entering a period of indecision. If it appears in a bearish market, it could mean that the drop will halt, which might be considered good. However, in bullish markets, traders would take it as a bad signal, as it marks the end of growth.

When this formation happens, the closing price is under the mid-point. As such, it’s considered a bearish signal, especially when it happens https://www.bigshotrading.info/blog/hammer-candlestick-pattern-spotting-using/ near resistance levels. In the next step, in particular, after determining the downward trend line, you can analyze the candlestick chart.

• In technical analysis, a Doji is an indication of a possible primary trend reversal during a time when there are high trading volumes in a particular direction.
• Then, it reverses with a long red stick which kicks off a new downtrend.
• The candle following must drop and close below the close of the dragonfly candle.
• A doji candlestick is formed when the market opens and bullish traders push prices up while bearish traders reject the higher price and push it back down.
• So again, the close and the open is the same level but the difference this time around for Dragonfly Doji is that the candle has a lower wick.
• It appears when price action opens and closes at the bottom of a trading range.