How to Trade the Doji Candlestick Pattern

types of doji candlestick

As mentioned above, the other two types of doji patterns are the gravestone doji and the long-legged doji. The low, open, and close prices of a gravestone doji are at the same level. Same as the dragonfly, the gravestone doji also indicates potential price reversals and requires confirmation candlesticks. 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.

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Some common doji candlestick chart patterns include the dragonfly doji, gravestone doji, long-legged doji, star doji, and hammer doji. Each has a slightly different shape, which we discuss in more detail below. Unlike Gravestone Doji, Dragonfly Doji, which also looks like a 'T' implies that the financial assets or stocks or financial assets are opened and closed at the highs of the day. It forms at the peak of an uptrend and indicates a possible trend reversal. This type of Doji candlestick pattern shows a lot of hesitation between sellers and buyers in the marketplace. The thick body of a candlestick shows the opening and closing prices.

What is a Doji Candle?

Identifying these candles are of no significance without any context. Depending on where the open and close prices are, the Doji can have some variations. The below price chart for US SPX 500 index shows a bearish star doji marked the start of a short-term down move, following a rally in price. Therefore, during this trading session, neither bulls nor bears had any particular advantage over the other, with most trades canceling one another out.

Unfortunately for the bulls, by noon bears took over and pushed GE lower. The first doji outlined on Chart 1 in the previous section was a high-low doji, where prices made the highs for the day first, and the lows for the day second. The trade must make use of other technical analysis techniques to determine entry and exit points for trades. Neutral Doji generally forms when the buying and selling powers for a stock in the market are at an equilibrium.

types of doji candlestick

Before acting on any signals, including the Doji candlestick chart pattern, one should always consider other patterns and indicators. For example, if you think that a common doji at the bottom of a downtrend means possible reversal, you can test the bullish bias using the stochastic oscillator. This indicator follows the speed and momentum of the market over a specific timeframe, predicting price movements. This one has a long lower shadow, while the upper shadow is non-existent. That means that the open, close, and high are all at the exact same level.

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The word Doji is of Japanese origin which means blunder or mistake that refers to the rarity of having the open and close price be exactly the same. Identifying a Doji candlestick is like finding a piece of the puzzle that grows more pivotal to the whole picture, the more puzzles you add to it. A Candlestick Pattern is akin to solving a third of the puzzle and getting a good idea of what the end picture holds.

In the new release the price gets up and down you can see long-legged Doji can be difficult to trade because the range of the candle is worse. Get the opportunity to shorten the highs on the daily time frame. The candle has a upper wick with the same open and close, this means there is a rejection of higher prices.

Understanding the meaning of the Doji candlestick pattern

It is used as a technical indicator that signals a potential reversal of the asset’s price. A doji is a candlestick chart​​ pattern where the price moves higher and/or lower throughout a given time period of trading, but the price closes very near to where it opened. A doji candlestick indicates indecision between buyers and sellers; therefore, a doji pattern can be seen as a potential signal for a trading opportunity.

If the market is seeing a continuation of the previous trend, after the Doji pattern forms, it could indicate a fake reversal pattern. This could be considered types of doji candlestick an opportunity to add on to a previously long trade. A bearish gravestone doji is typically the most common type of pattern and may occur near market tops.

Dojis may indicate bullish and bearish​ reversals in an asset’s price. This formation, which looks like a small horizontal line, signals the possibility of a super bearish or bullish trend at the start of the stock. This pattern does not appear from time to time, but when it does appear on the charts, traders should be prepared for large one-way movement in the counter. The price chart below shows a long-legged Doji candlestick pattern, implying a short-term top after a strong surge. Since the open and closing prices differ slightly, this candle is also known as a spinning top.

Gravestone Doji Candlestick Pattern

Subsequently looking to short the pair at the open of the next candle after the Doji. The stop loss would be placed at the top of the upper wick on the Long-Legged Doji. Despite the dragonfly doji being the standard doji candlestick, you’ll rarely get an ideal Dragonfly Doji where the price closes exactly where it opened.

This pattern appears when the bullish and bearish trends reach near-perfect balance. The problem with it is that it usually doesn’t provide a specific signal on its own. Traders may even mistake it for a trend continuation pattern, instead of one of the reversal patterns.

As demonstrated by a bearish long-legged Doji, uncertainty may suggest that the bulls lose control after a large advance. As a result, short-term traders may be tempted to place short positions if the market continues to fall following the pattern. This kind of candlestick might indicate that the bears are losing momentum. Conversely, a rise in the market might tempt traders to put long bets if this trend continues. Bearish Gravestone Doji patterns are prominent at market tops because they form when overbought. The Natural Gas price chart below shows a gravestone Doji as the asset’s price continues to decrease in a downtrend.

types of doji candlestick

For the sake of brevity, we'll discuss the various types of Bullish and Bearish Candlestick patterns, as well as various Bullish and Bearish Doji Candlestick in upcoming posts. However, when it's not strong enough, the market can reflect indecisiveness. Traders keep an eye on those moments to predict when the market trends will change. If you want to receive an invitation to our live webinars, trading ideas, trading strategy, and high-quality forex articles, sign up for our Newsletter.

As mentioned above, rallies and dumps need conviction to continue, and a doji candlestick is counterintuitive to that. This is characterised by a simple horizontal line, with no vertical line above or below it. It means that all the four prices, high, low, open and close, were at the same level. It signifies an extremely quiet market, one where prices didn’t move at all.

A gravestone doji pattern is the dragonfly doji flipped upside down. The opening price, low, and close are nearly the same, but the high price is much higher. A gravestone doji shows that buyers were strong early on, but by the close, they’d given up all the gains and sellers pushed the price all the way back to the open. Doji is considered to be both singular and plural, and mainly refers to the indecisiveness of both sellers and buyers. This may be a time when preferred buyers or sellers gain strength to continue the trend. Doji candlestick patterns are usually seen in the consolidation period.

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