DOJI CANDLESTICK TYPES: THE PATTERNS EVERY TRADE SHOULD KNOW
A Doji candlestick indicates market uncertainty and the possibility of a shift in trend. Because they are among the simpler candles to recognize and their wicks provide significant indications for where a trader may put their stop, Doji candlesticks are well-liked and often employed in trading.
This article explains the formation of Doji patterns and how to recognize five of the most potent and often used varieties of Doji:
- Standard Doji
- Long legged Doji
- Dragonfly Doji
- Gravestone Doji
- 4-Price Doji
FORMATION OF DOJI CANDLESTICK PATTERNS:
When the price of a currency pair starts and closes at almost the same level throughout the chart when the Doji is present, a Doji is created. Although prices may have changed between the candle’s opening and closure, the fact that they are almost the same price shows that the market has been unable to determine which direction to take the pair (to the upside or the downside).
Remember that trading in the direction of longer-term trends will often have a better likelihood. The best approach to trading a Doji is in the direction of the trend when it appears at the bottom of an uptrending retracement or the top of a downtrending retracement. The stop would be placed below the lower wick of the Doji in an uptrend and above the higher wick in decline.
TOP 5 DOJI CANDLESTICK PATTERN STYLES
- The typical Doji pattern
A single candlestick known as a Standard Doji does not always mean much. Traders look at the price activity leading up to the Doji to determine what this candlestick represents.
Doji candlestick patterns should only be used as a starting point for trades. For instance, a Standard Doji inside an uptrend can show to be a component of the uptrend’s continuance. The chart below, however, highlights the need for confirmation after the occurrence of the Doji and indicates the reversal of an uptrend.
2. Doji with a long leg
The vertical lines above and below the horizontal line are longer on the Long-Legged Doji. This shows that, while price action swung substantially up and down within the candle’s period, it almost closed at the same level as it started. This demonstrates the buyers’ and sellers’ uncertainty.
The price has somewhat reversed after making a significant move to the negative at the location where the Long-Legged Doji appears (see chart below). A trader might then interpret the uncertainty and possible direction shift if the Doji indicates the retracement peak, which we do not know when it forms. Next, at the start of the candle that follows the Doji, seek to short the pair. On the Long-Legged Doji, the stop loss would be positioned at the top of the upper wick.
3. Dragonfly Doji
The Dragonfly Doji, which denotes the possibility of a direction shift, may show up at either an uptrend’s peak or a downtrend’s bottom. Prices did not increase over the beginning price because no line above the horizontal bar forms a “T” shape. At the bottom of a negative trend, a very long lower wick on this Doji is a strong positive signal.
- Stone Tomb Doji
The Dragonfly Doji is the counterpart of the Gravestone Doji. It manifests when price movement begins and ends near the bottom of the trading range. Buyers successfully drove the price higher when the candle opened, but by the close, they had failed to maintain the positive momentum. This is a negative indicator at the peak of an upward movement.
5. Price Doji
The 4 Price Doji is only a horizontal line; there is neither a vertical line above nor below. Since the candle’s high, low, open, and closure (all four prices depicted) are identical, this Doji pattern denotes the utmost indecisiveness. The 4 Price Doji is a distinctive pattern that denotes hesitation or a calm market.
