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Doji candles

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.

There are several types of doji candles that can occur on a candlestick chart. Depending on where the doji occurs, each one provides different information to the trader. A doji could look like a plus sign, a T, or an upside-down T. In certain contexts, a doji candlestick could indicate that the price is near a topping or bottoming point. At other times, it means that the price may move sideways. Where the doji occurs in a trend is key to its interpretation.

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What is a doji in trading?

A doji tells traders that buyers and sellers were balanced at the end of the day, but this may have big implications. If sellers have been dominating and pushing the price down, a doji suggests that the buyers held their ground. Dojis may indicate bullish and bearish​​ reversals in an asset’s price.

A candlestick has a thick body marking the opening and closing prices. If the close is above the open, the candle is coloured white or green. If the open is below the close, the candle is coloured red or black. The tails or thin lines above and below the body of the candle mark the high price and low price recorded during the time period of the candle. Each candlestick chart pattern says something about the strength of the buyers and sellers within this timeframe. A long green daily candlestick may indicate that the buyers were strong that day, whereas a long red candle may indicate that sellers were strong.

Candlestick traders use this information to make decisions and devise trading strategies​​​. To find out what each type of doji means, we can look at where the high and low points are and where that doji occurs within the trend.

Technical analysis of a doji candle

Technical analysis​​​ is the field of studying chart patterns and price movements to determine where the price of an asset may go next. Technical analysis helps to provide information, which can hopefully then be turned into a profitable trade. Before analysing doji candles, traders may ask themselves some questions that relate to the context of the candlestick trade:

  • What is occurring on the candlestick chart before the doji pattern forms?
  • Is the price moving higher overall in an uptrend?
  • Is the price moving lower within an overall uptrend (known as a pullback)?
  • Is the price in a downtrend? Is the price in a pullback within an overall downtrend?
  • Is the price moving sideways or in a triangle pattern?
  • Is the doji pattern near support or resistance​​?

Answering these questions can provide insight into where an instrument’s price may move after a doji forms. Technical analysis can be used when analysing doji candlestick patterns in order to signal potential trading opportunities. Now that we know some technical analysis concepts and questions to keep in mind, we will look at the various doji chart types​​ and discuss some ideas on how to trade them.

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Doji candlestick types

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.

Dragonfly doji

A dragonfly doji candlestick pattern is created when the open, high, and close price of a candle are the same or very close to the same, but the low is much lower than these other three prices. A true dragonfly doji is rare. Most traders allow for slight discrepancies between the prices.

Essentially, a dragonfly suggests that the price opened and dropped, but by the close, the price was back up at the open. It lets traders know that there was weakness early in the day, but by the end of the day, the price had recovered, indicating the strength of the bull market. Below is a dragonfly doji on a US SPX 500 index chart.

In this case, the dragonfly doji occurs after a small pullback in an overall uptrend. As the price is starting to move back up, the dragonfly doji on top of recent candles shows that the sellers are decreasing and the bulls are taking over again. The price that is moving higher after the dragonfly doji is called a confirmation, which helps to confirm this interpretation of the price action​​​.

Gravestone doji

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.

Bearish gravestone doji

A bearish gravestone doji is typically the most common type of pattern and may occur near market tops. The below price chart for Natural Gas shows a gravestone doji in a downtrend, as the asset’s price is constantly declining. There is a pullback to the upside, followed by a gravestone that marks the end of the pullback higher. The price moves lower after the gravestone doji, confirming that the bears have taken over again.

Long-legged doji

A long-legged doji occurs when the open and close are nearly the same price, but there are extreme highs and lows during the period, creating long tails. A long-legged doji pattern indicates indecision because neither the bulls nor bears make any real progress, despite strong moves both up and down during the period.

After a strong advance, this type of indecision could mean that the bulls are losing control, from a bearish long-legged doji. A price move lower following the pattern could induce traders to enter short positions. After a strong decline, a long-legged doji candlestick could indicate that the bears have lost momentum. A move higher following this pattern could induce traders to take long trades.

If the price is moving sideways overall, or consolidating, the long-legged doji may confirm that the traders still are not sure which way to go. It helps to confirm that sideways movement may continue.

The price chart below shows a long-legged doji candlestick pattern, which could help to signal a short-term top following a brief rally. Since this candle shows a small difference between the open and close price, it is also called a spinning top.

Star doji

Star doji candlestick patterns can come in two forms: there is a bullish doji star and a bearish doji star. Both appear after either an uptrend or downtrend in the price of an instrument and help to signal different directions of trend​​​​​.

Bullish doji star

A bullish star doji, also referred to as a morning star doji, occurs after a decline and looks like a plus sign. If the price moves higher after the bullish start doji, this helps to confirm the pattern. It is a “star” because its body must be below the prior candle’s body.

The below chart for Brent Crude Oil shows how two bullish stars formed after a sharp drop in price. The price gap lowered, created the star (and then another) and then moved higher after, helping to confirm a bearish price reversal.

Bearish doji star

A bearish star doji occurs following an uptrend and looks like a plus sign. If the price moves lower after the candle pattern, this helps to confirm the doji star’s bearish reversal. It is a “star” because its body must be above the prior candle’s body.

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.

Hammer doji

The hammer doji candle occurs after a price decline and is shaped like a hammer. Hammer doji candlesticks are created when the price opens, falls, then closes near the opening price. The pattern signals that buyers are hammering in at the bottom.

Hammers doji patterns frequently occur. The below price chart for the UK 100 index shows several patterns that occurred near bottoms. Following the hammer, the price should move higher, which helps to confirm the pattern. On three of the examples, the price does move higher, and on one example, it does not.

If a hammer pattern occurs after a price advance, it is called a hanging man, and could signal a possible reversal if the price proceeds lower after it.

How to trade doji candlesticks

Trading any type of doji candlestick pattern requires patience and the ability to wait for confirmation. The appearance of one of these doji candles alerts traders of a possible price reversal, but until that occurs, most traders leave the pattern alone.

  1. To get started trading doji candlesticks, open an account. Choose between a live account to trade CFDs straight away or practise first on our demo account with virtual funds.
  2. Choose your financial instrument. Doji candles can be spotted in most financial markets, especially those that are more volatile, such as forex and stocks. Read our article on the top forex candlestick patterns to look out for.
  3. Explore our online trading platform. We offer multiple chart types that are not limited to candlestick charts, as well as providing a range of order execution tools for fast and automated trading, which in turn helps you to manage risk.

The below strategies for trading doji candlestick patterns is merely guidance and cannot be relied on for profit.

Doji trading strategy

  • For a bullish doji, an option could be to place a buy order above the doji high, then place a stop-loss below the low of the doji. If the price does move higher, the entry is triggered, but risk is controlled in case the price drops after.
  • For a bearish candlestick, a trader could place a short sell order below the doji low, then place a stop-loss above the doji high. If the price does drop, the entry is triggered and the risk is controlled if the price moves back to the upside.
  • For an exit, a trailing stop-loss​​​ could be used. You should also consider a risk/reward ratio in order to calculate your potential wins and losses.
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Doji candles are short-term patterns. They mostly occur over one period and can therefore only indicate what the price may do in the short-term, rather than helping to signal long-term changes in trends. A price reversal following a doji could last a long time, or only a few periods. Trading doji candlesticks is a constant task of analysis, since each new candle provides information.