Japanese Candlesticks - Doji CandlesAs traders, if we want to improve our technical analysis knowledge to better develop our price action skills, we owe it to ourselves to grasp candlestick patterns, in this case the Doji candlestick pattern.
This post will go into further detail about this unique candlestick group and will also explain the psychology behind these patterns and how they can affect future price movements in the market.
Before we go into further detail about doji candles, there are times this post will mention the words: 'OPEN PRICE, 'CLOSE PRICE, 'HIGH PRICE, 'LOW PRICE, 'UPPER WICK, 'LOWER WICK, and 'BODY.' So what are these?
OPEN PRICE: Open means a candlestick's first price when it started.
CLOSE PRICE: Close means a candlestick's last price when it ended.
HIGH PRICE: High means how high the price went during that candlestick.
LOW PRICE: Low means how low the price went during that candlestick.
UPPER WICK: An upper wick forms when the high price of the candlestick is higher than the close price (bull candle) or open price (bear candle) of the period.
LOWER WICK: A lower wick forms when the low of the candlestick is lower than the close price (bear candle) or open price (bull candle) of the period.
Body: The visual difference between the candlestick's open and close prices.
What is a Doji candlestick?
The Doji Japanese candlestick pattern is a class of single-bar indecision patterns whose open and close prices are either identical or close to identical and therefore either do not have bodies or have very small bodies. A doji candlestick pattern generally suggests indecision or uncertainty in the markets. The reason for this is because of the psychological meaning behind a doji candle. As previously mentioned, all doji candles' open and close prices are either identical or close to identical, meaning that during the time of the candle's formation, buyers (bulls) and sellers (bears) were both at a complete standoff and neither one came out on top.
There are different types of doji patterns depending on where the open and close prices are, and these types are known as: doji star, gravestone doji, dragonfly doji, long-legged doji, and four-price doji.
Technical traders use the 'doji' term to refer to all of the above patterns but specifically call out a doji by its proper name when they want to be more specific, e.g., a dragonfly doji.
Doji Star
The doji star (also known as 'standard doji' or 'neutral doji') is a pattern that is composed of an upper and lower wick on either side of the opening and closing price that are approximately the same length.
The doji star’s main features are:
Identical or close to identical opening and closing prices.
The upper wick and lower wick are approximately the same length.
Overall, it has a cross shape.
It indicates indecision: the market hesitates between two directions.
When a doji star appears at the top of a bullish swing or at the bottom of a bearish swing, this is seen as a sign that there may be a possible change in the trend. The reason for this is due to the neutral formation of the candle and what it means psychologically: this candle pattern tells us that buyers and sellers were completely equal; it is not possible at this moment to judge which side of the market has the upper hand, so if a doji star appears near the top or bottom of a trend swing, then it is possible that there may be hesitation or uncertainty to continue the trend.
Gravestone Doji
The gravestone doji pattern is formed by a candle that has only the upper wick. This indicates that the price tried to move higher but failed to do so and closed at a price identical to or close to identical to both the open and low prices.
The gravestone doji’s main features are:
A long upper wick.
No lower wick
Open and close prices are identical or close to identical to the low price.
Overall, the pattern has an inverted 'T' shape.
This pattern is most significant at the top of a bullish swing.
It indicates indecision; this has a more bearish bias because of the upside rejection of the high price from the sellers.
The psychology behind the gravestone doji usually indicates that the buyers might be losing power because they can no longer drive the price up and the sellers might be in control. When a gravestone doji pattern appears, especially at the top of a bullish swing, this is seen as a positive sign that there may be a possible change in the trend.
Dragonfly Doji
The dragonfly doji pattern is formed by a candle that has only the lower wick. This indicates that the price tried to move lower but failed to do so and closed at a price identical to or close to identical to both the open and high prices.
The dragonfly doji’s main features are:
A long lower wick.
No upper wick.
Open and close prices are identical or close to identical to the high price.
Overall, the pattern has a 'T' shape.
This pattern is most significant at the bottom of a bearish swing.
It indicates indecision; this has a more bullish bias because of the downside rejection of the low price from the buyers.
The psychology behind the dragonfly doji usually indicates that the sellers might be losing power because they can no longer drive the price down, and the buyers might be in control. When a dragonfly doji pattern appears, especially at the bottom of a bearish swing, this is seen as a positive sign that there may be a possible change in the trend.
Long-legged Doji
The long-legged doji pattern is just like the doji star, but with a longer upper and lower wick on either side of the opening and closing price. This pattern suggests not only market uncertainty but also more market volatility due to the longer wicks on either side.
The long-legged doji's main features are:
Identical or close to identical to the open and close prices.
The long upper wick and the long lower wick are approximately the same length.
Overall, it has a cross shape.
It indicates indecision and higher volatility; the market hesitates between two directions.
Four-Price Doji
The four-price doji pattern (also called 'doji of four prices') is the rarest doji pattern type; it is extremely rare on the chart, especially on the higher time frame charts. It represents a straight horizontal line (only the body, without any upper and lower wicks). The pattern is formed when all four prices are the same: open, high, low, and close.
The four-price doji's main features are:
Completely flat horizontal body with no upper or lower wick.
Overall, it has a 'dash' shape.
Open, high, low, and close prices are all identical.
As rare as this doji pattern is, it does form from time to time. This happens either on very low-liquid assets or when volumes severely drop on the market, for example, during holidays or near the start or close of a trading session.
Be careful with short time frames!
Doji candles appear far too often in shorter timeframes; traders on short-term timeframes do not generally take them as serious signals for predicting future price movements. Doji candles on shorter time frames are not as psychologically impactful as doji candles that form on longer-term charts. A big reason for this is due to the fact that it is a lot easier for a doji candle to develop in a shorter time frame than in a longer one. For example, it is far easier for a one-minute candle to have an identical or close to identical open and close price than it is for a daily candle to have an identical or close to identical open and close price. Additionally, short-term timeframes feature a lot of price noise, which can be confusing for traders.
EURUSD 1 Minute Chart
As you can see in the image above, doji candles appear too many times in the shorter time frames to be effective.
Advantages and Disadvantages
With all technical analysis methods in the financial markets, there are advantages and disadvantages to them, and doji candle patterns are no different. The advantages and disadvantages of doji candle patterns are:
Technical traders use Japanese candlestick patterns to help understand and predict future price movements. Doji candles can be very effective in doing this, and traders should pay attention to them when they form on their charts as they can provide potential trading opportunities. However, due to their limitations, traders should use additional technical analysis methods alongside any doji pattern to predict future price movements. Doji candles are indecision candles and therefore do not guarantee trend reversals, but make sure you are cautious of them, observe them, and, most importantly, learn from them!
Trade safely and responsibly.
BluetonaFX
Longleggeddoji
NIFTY strong REVERSAL candle on WEEKLY TF#NIFTY Strong reversal candle this week & long leg Doji on Monthly Chart after 3 Consecutive months sell-off!
If one had read the chart without any bias, the trend on weekly charts was up & not down.
Only a break below 16740-50 levels would mean a change in trend to downtrend.
The Price perfectly fulfills my last idea and moved towards the upside and also closes above the 17222+ On weekly chart. From the support zone of 16850 price moved towards the upside till the 17380+ with a bullish candle and price closes on positive note on weekly chart in the Friday session. After 3 consecutive red candle on weekly chart we closes in big green candle in the last week.
Now the price can head towards the 17555--17600 level to touch the upper downward parallel channel and if price go sideways for 1 or 2 days near the upper hand of parallel channel and than breaks the upper parallel channel and level of 17600 and sustain above it than we can see tremendous move towards upside and targets will 18000/18222+ In coming trading sessions.
If price unable to breaks the upper parallel channel and again respects it and face Resistance than we can again move towards the downside till the support level.
BANKNIFTY LONG LEG DOJI ON MONTHLY TF #BANKNIFTY Strong Reversal candle this week & Long Leg DOJI on Monthly Chart After 3 Consecutive Months Sell-off!!
Only a break below 38600 level would mean a change in trend to downward.
The price perfectly fulfills my last idea and moved towards the upside and also closes above the 39888+ On weekly Chart. From the support zone of 38600 price moved towards the upside till the 40650+ with a bullish candle and price closes on positive note on weekly chart in the Friday session after 3 Consecutive red candle on weekly chart we closes in big green candle in the last week.
Now the price can head towards the 41000-41222 levels to touch the Downward parallel channel and if price go sideways for 1 to 2 days near the upper hand of parallel channel and than breaks the upper parallel channel and level of 41222 and sutain above it than we can see good upside move and targets will be 41800/43000+ In coming trading sessions.
If price unable to breaks the upper parallel channel and again respects it and face Resistance than we can again Move towards the downside till the support level .
Level of 38500 is support for the Banknifty on monthly chart.
WOW NLST!! +360% since June 25th buuuut . . Look at THAT TOP!! The long legged Doji may as well be a Gravestone / Orphaned Baby. There's a gap just under the daily low and after a 360%+ run from the 25th of June, it's gotta pull back from a $9.98 resistance. I left the Fib overlay intact from yesterday as it snap fits like a glove. Also, just look at the ski tips on those MA's (50/200). I've been watching this since last Fall and got it at $0.65. Super salty now cuz I sold at just under $3 to pile into something else. Looks like the lawsuit with Google will print some new highs in time but for now, the last valuation I saw was $4 by the analysts. We do have a gap still, down around $2.50 so we'll see what comes of that. Not investment advice, DYOR and Good luck!
GBPAUD, 4hr tf, holding below weekly resistance
We might finally see this pair drop as well. As you can see, there is a doji candle in the 4hr candle exactly below the resistance. This could be a turning point for GBPAUD.
As long as price hold below 1.8650, we could see GBPAUD going down for a correction.
I will try selling this pair once again.
Sell GBPAUD 1.8630
Stop loss 1.8700
Take profit 1.8420 (3R)
Use only 1-2% risk
Good luck
Know your Candlesticks...SPY range Still Neutral to Short IMOSPY Linked below is a diagram pic of the Long-Legged Doji printed today. Initial analysis still stands as of now, but break above the top of doji shadow printed today would put a temporary halt on downward momentum in my opinion. Until then, I will continue to short an rallies daily until my target area is reached or the conditions change. Happy hunting and GLTA!! s.yimg.com
EUR/USD Long Setup - Breakout of the channel on the H1 showing price structure being taken out and supporting this bullish sentiment.
- Bullish divergence on the H4 using stochastics implying the bearish momentum coming to a halt and that we are in the mist of seeing a reversal after testing the lows of 1.1450.
- Clear rejection of the weekly support level on the D1 with a long legged doji, almost a dragonfly, which we saw yesterday on the daily closure.
- Targeting just above the 1.1600 level to my H4 resistance level with around 115 pips to be gained with a 70 pips stop loss.
Bullish Long-legged doji MonthlyLong-legged doji is a candle with long upper and lower shadows and a small real body. The pattern shows that there is an indecision between the buyers and the sellers, and that the market is approaching transition period.
Long positions can be taken in case of Bullish Long Legged Doji, once high of the candle is exceeded.
Shorts can be initiated once the low of the candle is broken, in case of Bearish Long Legged Doji.
Bullish:
Bullish Long Legged Doji has very long shadows on both the ends. The patterns shows indecision of buyers and sellers. It is a bullish reversal pattern. In this pattern, market is in a bearish mood and is in downtrend. Then, a Long Legged Doji appears, which gaps in the current trend.
This pattern requires confirmation by way of opposite move to the prior trend on next day.
Bearish:
Bearish Long Legged Doji has very long shadows on both the ends. The pattern shows indecision of buyers and sellers. It is a bearish reversal pattern. In this, market is in a bullish mood and is in uptrend. Then, a Long Logged Doji appears, which gaps in the current trend.
EURUSD Weekly long legged Doji on massive supportEURUSD closed the weekly candle with a long legged Doji outside the bollinger band.
Not to mention the massive support zone we have around 1.0510.
This could activate a rocket correction from the last 14 days of downtrend.
Another interesting thing is the movement from November 2015.
After weeks of downtrend the price turned in the last November week at 1.0510 and made a correction of 50% in rocket speed.
Is the same thing going to happen again? If not next week is it going to happen in the first December week (Italy Referendum)?
In my opinion the parity of the EURUSD is still far away. I don't think that we will break the major support at 1.0510 which would pretty much let the EUR/USD put in free fall mode. I think we will see the 1.0950/1.1000 at least before we go further down.
This trade may fit in someones trading plan. For me are the facts above to attractive. Can't just ignore them :)
Entry Level: 1.0600 +/-10pips
Stop Level: 1.0490
Target Level: 1.0950
A long legged doji in the PRZ of the bearish Crab?Aggressive entry
I took almost the high of this potential long legged doji with a Shark113 short @ 2.1000. I consider this level as the higher zone of the PRZ of the bearish crab. I will post another logchart with all my trades within this PRZ of the bear crab.
Testing
Thus far, each level of the PRZ has tested:
- XA 1.618% extension / BC 2.618 extension
- BC 3.0% extension
For more information about my predefined PRZ see:
Reading the chart
Now if the daily candlestick closes as a long legged doji, I will read this candlestick as bull weakness:
The bulls have tried to overcome this PRZ, but the bears hold their line at the 3.0% extension of BC. At the end of the day, none of sides has really won. However, since this potential doji started off with a gap to the upside, I think there is some bull exhaustion.
Setup
Since I'm already short with the Shark pattern aligned with the 3.0% of the BC extension of the crab PRZ, I've used my regular stoploss of 1.414% extension of OX of the Shark.
But, there is a nice reward if you're patient enough to hold these positions overnight. I'm targeting the 38.2% retracement of the CD leg of the crab as my first target. My second target would be the 50% retracement.
Entry: 2.0878
SL: 2.0190
target 1: 2.01915. risk/reward: 1:3.24
target 2: 1.9930.