A doji is a pattern of indecision but can be inclined to bullishness and bearishness. A longer lower tail means stronger bulls and a longer upper tail means stronger bears. Meta Chart by TradingViewIn the above chart, I have marked four gravestone doji and one harami candlestick pattern. The second dragonfly doji should be taken seriously because it appears at the end of a pullback. So, the second doji might be a sign of the bulls’ power and needs to be confirmed. Alibaba Chart by TradingViewIn the above chart, the first dragonfly doji occurs at the top or in an overbought situation.

However, a doji on its own isn’t necessarily a strong signal, so you’ll want to make sure that you have a stop loss in place – and that you’ve confirmed any likely move. It’s dangerous to open a position unless you’re an experienced trader. Never enter the market when you see a Doji candlestick, what does doji mean provided there’s no more confirmation of the upcoming market direction. Please be reminded that the signal is only reliable if there’s confirmation from other technical tools. This type can occur in an uptrend and downtrend, and it’s more reliable at the end of the downward trend.

How to trade when you see the doji candlestick pattern

Any and all information discussed is for educational and informational purposes only and should not be considered tax, legal or investment advice. A referral to a stock or commodity is not an indication to buy or sell that stock or commodity. A long upper wick gives forth a suggestion that buying pressure is being countered by selling.

• Conservative traders can choose the next level up for their profit target, or if you believe a stronger trend will take over then you can look to the 50% or 61.8% areas.
• And you can use the level and the areas on your chart to establish a bias.
• But, if you combine chart patterns, and fundamental, and technical indicators a prediction can be more accurate.
• Doji and spinning top candles are commonly seen as part of larger patterns, such as the star formations by technical analysts.

It means there’s almost a 50/50 chance the market will move either up or down. Still, if you read the signals correctly, you can get more information from this pattern. It’s the opposite type of the Dragonfly Doji and is considered a bearish reversal pattern. It has a long upper shadow, a small body and a lack of or a small low shadow. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time.

Plan your trading

You must check your favorite economic calendar before trading these candlesticks because they may lull you into a false setup. However, just because the market “drifts” higher or lower doesn’t mean that’s the actual trend. Long shadows – This candlestick has a small body showing indecision but also long shadows offering plenty of volatility. A Harami Cross is a reversal candlestick pattern that consists of a long candle is followed by a Doji. For the pattern to be a valid Harami Cross, the Doji should be located within the body of the… When you see a Doji candlestick pattern, you know that the session closed very near to where it opened, which is why the candle doesn’t have a body.

• The short body of the candle suggests that there was a lot of indecision in the market regarding…
• Doji by themselves do not provide a reliable trading signal and can appear in clusters.
• In addition to understanding and identifying trends, traders need to know different chart patterns and what they mean.
• Reading a doji involves finding a candlestick with a small real body with an opening and closing price that is virtually the same.
• A doji candlestick pattern is considered to be a transitional formation since it doesn’t signal either one of a continuation or a reversal of the trend.

Long-legged Doji, which looks like a cross, also indicates that the price of the financial asset being traded closes in the middle of the day’s high and low. A doji is a trading session where a security’s open and close prices are virtually equal. The appearance of a dragonfly doji after a price advance warns of a potential price decline. Commodity and historical index data provided by Pinnacle Data Corporation.

Candlestick Pattern Dictionary

The long lower wick tells us that the market continued to fall at the beginning of the period. But by the end, buyers had intervened, and all the losses had been overcome. You can try out trading doji risk free with a FOREX.com demo account. It gives you virtual funds to hunt for doji across 1000s of live markets, including forex, indices, shares and more. You can also form a doji star with a spinning top in the middle, but the signal isn’t as strong.

Following a price advance, the dragonfly’s long lower shadow shows that sellers were able to take control for at least part of the period. While the price ended up closing unchanged, the increase in selling pressure during the period is a warning sign. Candlestick charts can be used to discern quite a bit of information about market trends, sentiment, momentum, and volatility.

How Do You Trade the Doji Candlestick Pattern?

When a hammer’s body is very small we treat it as a dragonfly doji. If the trend traveled a long distance, and a long-legged doji formed, it means to be careful because the opponents are trying to counterattack, making a reversal more possible. The following chart belongs to EURUSD one-minute chart, and you see many 4-price doji patterns. However, if a doji appears after a long time of trending, then the chance of reversal increases. If not, it is more likely to be a continuation pattern or a time for rest. As with other candlestick patterns, this started being used in Japan in the 17th century . While these patterns are essential, you need to realize that they are never accurate.

Some examples would be 1.15, 0.500, 1.20, or any other major figure that you may see, like $30,000. A Doji candlestick tells you that the market is hesitant at the moment, meaning that traders are not sure which direction they want to go. That being said, it’s essential to understand those market participants may have to reassess the situation. The “Gravestone Doji” is the exact opposite of the Dragonfly Doji.

The doji candlestick meaning a possible reversal allows a trader to take a position accordingly. The disadvantages of doji candlesticks come from the fact that they are neutral patterns at their core. This leads traders to take a position expecting a possible reversal, only for the doji to instead represent indecision before continuation. A neutral doji form when the open and close prices are roughly the same or equal. A doji can form as a red doji candle or a green doji candle.