Doji

What is a Doji Candle?

A Doji candle chart pattern is a formation that occurs when the market's open price and close price are almost exactly the same.

Because the beginning and closing prices are equal or nearly equal, it appears to be across. The Doji candlestick is named by its distinctive shape, which represents indecision.

Since a Doji is formed during an uptrend or downtrend, it is considered a possible indication of a trend reversal pattern for technical analysts. Even if prices may have moved between the open and close of the candle, the fact that the open and close takes place at almost the same prices shows that the market has been unable to select which direction to take the market or currency pair.

The word Doji is of Japanese origin, which means blunder or mistake, which refers to the rarity of having the open and closed price almost exactly the same. The vertical line of the Doji pattern is called the wick and the horizontal line is called the body. As the top represents the highest price and the bottom represents the lowest, the wick's length might fluctuate. The difference between the opening and closing prices is represented by the body. Only the height, not the width, can be altered.

Types of Doji Candle

There are five types of Doji candlestick patterns, they include:

Standard Doji pattern or Star Doji candle: A standard Doji candlestick has two short wicks that are of a similar length both up and down. It occurs when a candle opens and closes at the same level, with only a little range of movement in between. It reflects the market's excessive indecisiveness and traders' lack of commitment. If additional indicators suggest that prices are overbought or oversold, a price reversal may be on the way.

Long Legged Doji: The long-legged doji has long upper and low wicks and appears when the price has moved up and down drastically before the candle closed at the same level as it opened. It will be a bullish or bearish reversal pattern depending on the trend direction of the market action leading up to the long-legged Doji.

After a bullish move, a long-legged Doji is considered a bearish reversal pattern. A long-legged Doji after a bearish move, on the other hand, is regarded as a bullish reversal pattern.

Gravestone Doji: The gravestone Doji has a long upper wick and therefore when candles open and close occur at the low end of its trading range, it indicates that a current uptrend may be coming to an end with the price about to be reversed downward.

Dragonfly Doji: Dragonfly Doji has a long lower wick and appears when a candle is open and close occurs at the high end of a trading range. It usually appears at the peak of an uptrend and it possibly signifies a reversal of the current trend it indicates that the current downtrend may be coming to an end with a price about to reverse upwards.

Four price Doji: Four price Doji is a candlestick where open high, open low, and open-close are all the same. This candle represents the most indecisiveness between bulls and bears. This candle appears frequently in pre-market and after-market horse-trading on low trade volume.

How to Understand a Doji candle

Each candlestick has four parts they are opening and closing and high and low prices of the day looking at it will give an idea about the price movement of an asset.

The opening and closing prices together create a thick section called the body, the higher the difference between the opening and closing prices, the longer will be the real body of the candle on either side, and the highest or the lowest prices of the stock create wicks or vicars.

A Doji candle is often interpreted as a sign of a trend reversal by traders. As a result, individuals prefer to wait and contemplate to see if a more convincing pattern emerges.

For example, if a Doji candlestick appears during an uptrend, it may indicate that buying momentum is slowing, but it could also indicate momentary indecision, and the market could continue to move in the same direction afterward, so one should not plan their strategy solely based on a single Doji pattern, as this could be incorrect.

Benefits of Doji Candle

It is quite simple and can be understood without any special knowledge.

It can be found in any timeframe and for any asset.

Although the candlestick does not provide accurate trend reversal or continuation signals, it may be an alarm when the market is ready to turn around. Traders use the signals to enter or exit a trade.

Limitations of Doji Candle

Because Dojis are uncommon, they are not reliable or trustworthy indicators on their own. They are only trustworthy if other technical tools back them up.

It does not always symbolize an extended trend reversal. The prevalent trend's path may shift, but the new direction's endurance cannot be assured.

Because candlesticks do not always include price targets, some traders have trouble distinguishing between a Doji and a spinning top. Using a doji to make an informed trade does not guarantee any estimate of the potential profits in the trade. The trade must make use of other technical analysis techniques to determine entry and exit points for traders.

Doji Candle