The Doji candlestick pattern is a technical analysis pattern commonly used by traders to identify potential trend reversals or indecision in the market. It’s a single candlestick pattern that shows indecision in the market, which means neither buyers nor sellers are able to gain control.
After seeing this candle, you can expect that the trend is may reverse, especially if it appears after a strong uptrend or downtrend.
The kind of Doji candlestick:
This candle body is very small and depending on the type of shadow formation, this candle is divided into 5 types:
Doji Star: The Doji Star is a type of candlestick pattern that occurs when a doji candlestick is located near a preceding candlestick with a larger body, forming what looks like a star. The Doji candlestick is a candlestick with a small real body, which means that its opening and closing prices are very close or exactly the same.
It suggests that the trend is losing its momentum and a reversal could be imminent. However, traders usually wait for confirmation of the reversal before making a trade based on this pattern.
Long-Legged Doji: This pattern has a very small body with a long upper and lower shadows that indicate extreme market volatility and hesitation of sellers and buyers at the same time.
When the Long-Legged Doji appears in an uptrend or downtrend, it can suggest that the trend may be losing momentum and a reversal could be imminent. However, traders usually wait for confirmation before making a trade based on this pattern.
Dragonfly Doji: This pattern has a long lower shadow and an absence of upper shadow. It suggests that buyers were able to gain control at some point during the trading session, but the sellers ultimately pushed the price back down.
If seen at the end of the downward and upward trends, it indicates a trend reversal warning If it is seen at the end of the downward trend, the signal is stronger and more valid.
Gravestone Doji: This type of doji candlestick is the opposite of the dragonfly doji, with a long upper shadow and no lower shadow. The open and close prices are at or near the low of the day, suggesting that sellers were able to gain control at some point during the trading session, but the buyers pushed the price back up.
If seen at the end of the downward and upward trends, it indicates a trend reversal warning. If it is seen at the end of the upward trend, the signal is stronger and more valid
Four-Price Doji: This pattern occurs when the open, high, low, and close prices are all the same. It suggests that there was a significant amount of indecision in the market, with neither buyers nor sellers able to gain control.
The key features of Doji pattern are as follows:
- A single candlestick pattern that is generally neutral
- It indicates the existence of doubt and indecision between buyers and sellers
- It can indicate the weakening of the trend and the end of the current market trend
- The starting and ending prices are almost the same in this pattern
- The longer the upper or lower shadow indicates the greater the anxiety and confusion
The concept of the Doji candlestick pattern:
The Doji candlestick pattern is formed when the open and close price of the candlestick are almost the same, indicating indecision between buyers and sellers and representing a very small or nonexistent body. The high and low prices, however, can be significantly different from each other, creating upper and lower shadows.
If it forms near the support and resistance range, according to the next candle, it can indicate the return of the trend and the price
Caution
Keep in mind that to enter the transaction and identify the market situation, don’t just look at a candlestick, but also use other methods to analyze the market so that you can enter the transaction with less risk.