Doji
A doji forms when the opening and closing prices are virtually equal, creating a candlestick with a small or no body. It signals market indecision and can indicate potential reversals when found at the end of trends.
Formation
- 1.Open and close are at or very near the same price
- 2.Can have upper and/or lower wicks of varying lengths
- 3.Four main types: standard, long-legged, dragonfly, gravestone
- 4.Body is minimal (typically less than 10% of total range)
Psychology
A doji represents a standoff between buyers and sellers. Neither side could gain control during the session, resulting in the price closing near where it opened. This equilibrium often precedes a shift in momentum.
Trading Tips
- ✓Most significant at the end of extended trends
- ✓Look for confirmation on the next candle
- ✓Higher volume increases significance
- ✓Combine with support/resistance levels
Confirmation Signals
- →Following candle closes in opposite direction of prior trend
- →Increased volume on the reversal candle
- →RSI or MACD showing divergence
- →Located at key support or resistance level
Doji FAQs
Common questions about this pattern
A doji indicates market indecision where neither buyers nor sellers gained control. It doesn't predict direction alone but suggests the current trend may be weakening.
A doji is neutral by itself. Its significance depends on context: in an uptrend, it may signal a bearish reversal; in a downtrend, it may signal a bullish reversal. Always wait for confirmation.
Standard doji has small wicks, long-legged has long wicks showing extreme indecision, dragonfly has a long lower wick (bullish), and gravestone has a long upper wick (bearish).