The doji is one of the most important candlestick patterns and many traders think that this candlestick pattern is one of the best ones to trade. Depending on their type, they can help you recognise when a price move or trend may be slowing down and when a price might reverse course. Learn here to recognize a doji and all the four types of doji candlestick.
WHAT IS A DOJI CANDLESTICK?
A doji is formed when the opening price and the closing price are equal and represents equilibrium between supply and demand. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.
Doji is quite often found at the bottom and top of trends and thus is considered as a sign of possible reversal of price direction, but the Doji can be viewed as a continuation pattern as well.
The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign.
There are five types of doji candlestick:
Standard or 'star' doji
A star doji has two short wicks that are of a similar length both up and down. It appears when the candle has opened and closed at the same level and has moved in a very small range in between.
Long legged doji
A long legged doji has long upper and lower wicks and appears when the price has moved up and down dramatically before the candle closed at the same level as it opened.
A Gravestone doji has a long upper wick and appears when a candle's open and close occur at the low end of its trading range. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow.
A Dragonfly has a long lower wick and appears when a candle's open and close occur at the high end of its trading range. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow.
Four Price Doji
TA Four Price Doji is simply a horizontal line with no vertical line above or below the horizontal. Open, Close, High and Low are quite the same. It's a very unique line indicating the indecision of the traders, or very quiet market.
WHAT DOES A DOJI MEAN?
Doji candles often gain significance when they appear after a long trend move up or down, or if they appear at a support or resistance level (such as a trendline). In fact, if the doji is found within a trend, it often represents something more significant and useful – a weakness in the prevailing trend. Buyers are either losing conviction in an uptrend, or vice versa for sellers in a downtrend. You will often find dojis very close to turning points, or price reversals. It is this characteristic that many traders find useful.