The word doji has Japanese origins and means ‘same matter.’ It is generally represented by a + sign on the stock market charts and helps traders to take a trade decision, but what does Doji candle indicate?
In this article, get into the detail of the doji candlestick pattern indication and learn to trade smartly.
Is Doji Bullish or Bearish?
Have you ever thought of a situation where both buyers and sellers are equally struggling to move the price? In such a scenario, the opening price and the closing price are near each other.
You can identify this condition with a candlestick pattern, and this is where Doji comes into play. Here are some characteristics of the Doji candlestick pattern:
– Mostly it is represented by the + sign.
– The Doji pattern has a small length
– The closing price and opening price are very similar
– The doji pattern shows that there is indecision in the market
Now what does it mean and how to read candlestick pattern?
This gives an indication of confusion.
However, there are different types of doji candles, and one can make the decision of market trend by considering one or two of the following parameters:
- Position of the doji candle
- The shape of the doji candle
- Opening and closing value position in the Doji candle.
- Color of the doji candle
- Length of the doji candle
For example, if you see a long-legged doji candle that appears as shown in the image below, it generally depicts indecision in the market.
But again we need to consider the above parameters and learn candlestick patterns technicalities before making a decision.
Is Long-Legged Doji Bullish or Bearish?
Long legged doji candle is represented by a long high and low wick with the opening and closing values almost at the center and close to each other.
If this candle formed in the middle of the uptrend or downtrend, then this generally depicts the indecision in the market, irrespective of its color.
Hence the trader must hold or not take an entry decision to trade in the market.
However, if this candle is formed at the support or resistance level then this might give an indication of a reversal. One must take a trade decision after the formation of second candle and after confirming a reversal signal using different types of technical indicator.
Is Gravestone Doji Bullish or Bearish?
The visual representation of a gravestone doji is a narrow base with a very long and narrow wick. It looks like the side profile of a gravestone.
A long upper shadow indicates that the trend may be nearing a major turning point.
It is formed when the opening and closing prices of the underlying asset are the same and occur at the low of the day.
It suggests that there was a lot of buying pressure early in the day, but the sellers eventually took control and pushed the price down to the low of the day.
Now if such a pattern appears near resistance, then this represents the end of the uptrend and hence gives a signal of reversal.
Since the market can probably go down this is a bearish candlestick pattern. In all to take the position in the bearish market, first identify this pattern and learn how to trade doji candlestick pattern.
Is Dragonfly Doji Bullish or Bearish?
Take a look at the image below, it kind of looks like a dragonfly right?
In Dragonfly Doji the long lower shadow shows that the direction might change. Now what does Doji candle indicate?
In this candle, the opening and closing prices get near equal at the high of the day. But the long tail of the dragonfly, what does it tell?
Well! It simply means, that after the opening of the market, the bears were aggressive and hence pulled the price downwards, however, the growing interest of the buyers built a buying pressure and closed the price at a high near the opening value.
It is generally formed after a long price swing near the support and gives a signal of bullish reversal.
But if it formed in the mid-way of an uptrend, then this candle does not give any clear indication.
Conclusion
In general, Doji is a pattern of indecision, and it shows when both buyers and sellers fail to change the price, however, depending upon the position it gives a sign of reversal as well.
It is therefore good to combine it with other technical tools including indicators to confirm your trade position.
There are many other candlestick patterns that traders can use to identify trade signals and you can gain proficiency in the same after you learn price action trading.
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