DOJI CANDLESTICK TRADING: KEY POINTS OF Discussion
A unique candle that indicates uncertainty in the currency market is the Doji candlestick, often known as the Doji star. Both the bulls and the bears are out of control. The Doji candlestick comes in five different forms, not all of which signify uncertainty. Because of this, it is essential to comprehend how these candles form and what this can indicate for future price changes in the currency market.
The five varieties of Doji utilized in forex trading are introduced in this article, along with an explanation of what a Doji candlestick is. Top Doji candlestick trading tactics will also be covered.
HOW DOES A DOJI CANDLESTICK WORK, AND WHAT IS IT?
The ‘cross’ form of the Doji candlestick, often known as the Doji star, is distinctive. It occurs when a pair of foreign exchange prices opens and closes at the same level, leaving a short or nonexistent body with equal-length upper and lower wicks. The Doji often denotes market hesitation, but it may also signal a trend already underway that is losing strength.
ADVANTAGES OF TECHNICAL ANALYSIS USING THE DOJI CANDLESTICK
The Doji star may be helpful since it gives forex traders a chance to “stop and ponder.” The appearance of the Doji pattern during an upward-moving market might be seen as a sign that selling momentum is about to ramp up or that purchasing enthusiasm is slowing down. Traders may see this as a signal to close out a long open position.
But it’s crucial to consider this candle shape in combination with a technical signal or your chosen exit plan. Only when a trader is confident that the indicator or exit plan supports what the Doji indicates should they decide to close out such positions.
Keep in mind that it’s conceivable that the market briefly remained uncertain before moving forward in the trend’s direction. Therefore, before selling an investment, careful examination is essential.
DOJI CANDLESTICK VARIATIONS COMPREHENSION
There are four more Doji candlestick variants in addition to the previously mentioned ones. The various varieties of the Doji star might tell a different tale than the conventional one, which will affect traders’ strategy and choices. The original Doji star is a symbol of indecision.
Furthermore, finding the ideal Doji in the FX market is quite rare. In actuality, traders want candles that closely mirror the patterns below; often, these candles will have a small body. The several Doji candlestick configurations are shown here.
TRADE RULES FOR DOJI CANDLESTICK
The numerous Doji candlestick patterns may be traded in several different ways. To execute higher probability trades, traders should constantly search for signs supporting what the Doji candlestick indicates. Additionally, to minimize losses if the transaction does not succeed, it is crucial to adopt solid risk management while trading the Doji.
The several Doji Candlestick trading methods are covered here.
1) Using the Doji star pattern in trading
The Doji star first appeared at the bottom of an ongoing downtrend, as shown in the GBP/USD chart below. The Doji pattern implies that neither sellers nor buyers are in charge and that the trend may change. At this point, it is vital to emphasize that before placing a trade, traders should watch for evidence that the trend may be reversing. The stochastic indicator in the chart below indicates that the market is now in the overbought zone, supporting the bullish bias.
2) The Dragonfly Doji in Trend Trading
One standard Doji candlestick trading method is watching Dojis show up close to levels of support or resistance. The Dragonfly Doji is close to trendline support on the chart below. Although, in this case, the Doji does not show up at the peak of the uptrend as previously suggested, traders may still make decisions about their trades based on what the candlestick indicates about the market.
The Dragonfly Doji signifies the market’s rejection of lower prices. The market then went upward and finished close to the opening price. The fact that the candle is close to trendline support and that prices have previously rebounded off this crucial trendline lends more credence to this potential bullish bias.
3) Double Doji Technique
Two Dojis (one after the other) give an even stronger indicator of hesitation than a single Doji, which often leads to a big breakout. The Double Doji approach aims to profit from the robust directional move that develops after the time of ambiguity.
After the Double Doji, traders might wait until the market increases or decreases. The entry point might be below the lows of the two Dojis in the GBP/ZAR chart below, and the stop can be above the highs of the two Dojis.
However, breakouts with increasing momentum can continue for a lengthy period; therefore, a trailing stop should be considered. Targets may be set at a current level of support.