Doji Candle: What to Know and How to Get Started
Learning how to trade a doji candle has profit potential and truly sets up for a nice trade setup. In this ultimate guide, we’re breaking down my research-backed process for trading a doji candle.
What is a Doji Candle, Exactly?
Ok, so the term “doji candle” really gives off strong crypto meme vibe. We get it–but there’s no doggy or meme crypto involved.
The term doji candle refers to “at the same time” or “simultaneously,” which is a appropriate name for the this type of candlestick. A doji candle is when the opening and closing price of a candlestick are very close to each other.
The doji candle is a candlestick pattern in technical analysis that represents indecisiveness in the stock market. The anatomy of the candlestick is usually a small body, and long wicks on either end, or both.
How does Doji Candle Work?
The doji candle pattern usually occurs after a strong uptrend or downtrend, and is often seen as reversal in trend.
Usually the length of the upper or lower wick can provide with tid bits of clues about the strength of buying or selling pressure.
For example, if a doji candle have long upper and lower wicks, it can represent indecisiveness on the trend. If the doji candle has a long bottom wick, it can represent that the selling pressure was not strong enough to take out the bulls.
On the other hand, if the upper wick is longer than the bottom, it can represent that the buying pressure was not stronger than the sellers.
Doji Candle Pattern Types
Here’s what you need to know about the different types of doji candles.
1. Standard Doji Candle
A standard doji candle can be identified when the top and bottom wicks of a candlestick are more or less equal to each other in height.
If this type of candlestick pattern appear after a strong uptrend or downtrend, in technical analysis, this may represent potential reversal in trend.
2. Long-legged Doji Candle
A long-legged doji candle is identified when the bottom wick is a tad bit longer than the upper wick. This usually means that price action was very volatile, and that buyers and sellers could not pick a direction in trend.
3. Dragonfly Doji Candle
The dragonfly doji candle may look similar to the the long-legged doji candle, but it differs because the bottom wick of the candlestick is significantly longer than the upper wick.
The dragonfly doji candle is typically a bullish reversal signal because buyers have gained control over the sellers and being able to push price action back up.
4. Gravestone Doji Candle
The gravestone doji candle may look similar to the the long-legged doji candle, but it differs because the upper wick of the candlestick is significantly longer than the bottom wick.
The gravestone doji candle is typically a bearish reversal signal because sellers have gained control over the buyers and being able to push price action back down.
5. Double Standard Doji Candle or Standard Doji Paired with Long-legged Dojo candle
A double doji candle shows consolidation. Buyers nor sellers were strong enough to win a direction in trend.
A double doji candle pattern that has one standard doji candle paired with long-legged doji candle still mean consolidation, but with a broader formation forming. This type of candle pattern can be either bullish or bearish.
6. Double Dragonfly Doji Candle Pattern
A double dragonfly doji candle pattern can mean a trend reversal to the downside. This occurs very often when price action is nearing a strong resistance level, and there is not enough buying pressure to break through.
6. Double Gravestone Doji Candle Pattern
A double gravestone doji candle pattern can mean a trend reversal to the upside. This occurs very often when price action is nearing a strong support level, and there is not enough selling pressure to break through.
How to Trade a Doji Candle in 4 Steps
Step 1: Identify Doji Pattern
If you have a favorite stock, go there first. And try to identify doji candles like the ones listed above.
Step 2: Wait for Breakout
Wait for price action to breakout out of the doji candle pattern, but do not jump in unless you have high conviction.
The reason is because fake outs do occur, and the last thing you want as a trader is for you trade to flip on you.
Step 3. Execute Trade on Continuation
The last step is to wait for a continuation candlestick. Continuation candlesticks will confirm the trend after the breakout, and give you a higher probability of have a successful winning trade.
Step 4. Review Trade
After the position is closed, journal your trade on the doji candle pattern, and look for any mistakes so you can avoid them next time.
Other Asked Questions
Can a Doji Candle be Bullish or Bearish?
A doji candle can be bullish or bearish–but it depends on the type though. It really depends on the price movement during the closing of the candlestick.
For example, a gravestone doji candle typically represents a bearish movement in price action. It shows that sellers are stronger than buyers.
The dragonfly doji candle is the opposite of a gravestone doji candle. It shows that buyers are stronger than sellers.
A long-legged doji candle can mean almost be bearish because it shows that there is not enough demand to push the price up higher. It could indicate a reversal.
A standard doji candle represents indecisiveness. It’s not bullish or bearish.
The market is unpredictable, and even though one doji candle type may mean something, it doesn’t always come true.
Double Doji Candles Meanings
When you have double doji candle, it means a pause in trend–the market is trying to determine where the trend should go.
Each one of the double doji candles have their meaning to them, but adding two doji candlesticks side-by-side can change its meaning.
