Doji Candlestick

When doji candlestick forms, it indicates that the market opens and closes at the same price. This means there is equality and indecision between buyers and sellers, with no one controlling the market. See the example below.

this signal means that the market didn’t decide which direction will take. When this pattern occurs in an uptrend or a downtrend, it indicates that the market is likely to reverse.

Interpretation: Reversal

Strong: After long uptrend and downtrend

Example : Doji Example at Resisitence

The chart above shows how the market changed direction after the formation of the Doji candlestick.
The market was trending up, that means that buyers were in control of the market.
The formation of the Doji candlestick indicates that buyers are unable to keep price higher, and sellers push prices back to the opening price .https://myntr.it/qUtVBVX

Dragonfly Doji pattern

The Dragonfly Doji is a bullish candlestick pattern which is formed when the open high and close are the same or about the same price.
What characterizes the dragonfly Doji is the long lower tail that shows the resistance of buyers and their attempt to push the market up.

The long lower tail suggests that the forces of supply and demand are nearing a balance and that the direction of the trend may be nearing a major turning point

Example of Dragonfly Doji at Support

The formation of the dragonfly Doji with the long lower tail shows us that there is a high buying pressure in the area .When it occurs in a downtrend, it is interpreted as a bullish reversal signal.

Gravestone Doji

The Gravestone Doji is the bearish version of the dragonfly Doji, it is formed when the open and close are the same or about the same price . The formation of the long upper tail is an indication that the market is
testing a powerful supply or resistance area

This pattern indicates that while buyers were able to push prices well above the open . Later in the day sellers back in the market pushing the price back down.
This is interpreted as a sign that bulls are losing their momentum and the market is ready for a reversal

Example of Gravestone Doji at Resistence

The formation of this candlestick pattern indicates that buyers are no longer in control of the market. For this pattern to be reliable, it must occur near a resistance level .

How to trade doji candle

Trading a Doji candle involves understanding its significance and the context in which it appears. A Doji is a type of candlestick pattern that signals indecision in the market. The opening and closing prices are almost identical, resulting in a candle with a very small or no body and long wicks.

Here’s how you can trade a Doji candle effectively:

1. Understand the Doji Candle:

• A Doji forms when the market’s open and close prices are nearly the same, indicating indecision between buyers and sellers.
• It often signifies a potential reversal or continuation in the trend, depending on the context of the market (uptrend, downtrend, or sideways).

2. Types of Doji Candles:

• Standard Doji: Small or no body with equal upper and lower wicks.
• Dragonfly Doji: Long lower wick and no upper wick, indicating potential bullish reversal.
• Gravestone Doji: Long upper wick and no lower wick, indicating potential bearish reversal.
• Long-legged Doji: Long upper and lower wicks, showing high market volatility and indecision.

3. Trade Based on Trend Context:

• In an Uptrend:
  • A Doji appearing after a strong uptrend could signal that buyers are losing control, and a potential reversal to the downside may occur.
  • Look for confirmation in the next few candles (e.g., a bearish candle after the Doji).
  • Short Entry: If the price breaks below the low of the Doji, consider entering a short position.
• In a Downtrend:
  • A Doji at the end of a downtrend may indicate a possible bullish reversal.
  • If the next candle is bullish, it may confirm a shift in sentiment.
  • Long Entry: Enter a long trade if the price breaks above the high of the Doji.
• In a Sideways/Neutral Market:
  • A Doji in a consolidating market may signal continuation of indecision, so wait for a clearer breakout before trading.

Confirmation is Key:

• Wait for confirmation before entering a trade. A Doji alone doesn’t guarantee a reversal or trend continuation.
• Look for confirmation candles:
  • A bullish candle after a Doji in a downtrend can confirm a potential reversal.
  • A bearish candle after a Doji in an uptrend can confirm a bearish move.
• Volume spikes during or after a Doji formation also confirm the validity of the signal.

5. Entry Points:

• Long Position: If a bullish confirmation candle follows the Doji, enter the trade when the price moves above the high of the Doji.
• Short Position: If a bearish confirmation candle follows the Doji, enter when the price drops below the low of the Doji.

6. Set Stop-Loss:

• Above/Below the Doji: Place a stop-loss just above the high (for short trades) or below the low (for long trades) of the Doji candle.
• This ensures minimal loss if the market moves against your position.

7. Take-Profit Target:

• Target support or resistance levels for profit-taking.
• You can also use a risk-reward ratio like 2:1, where your potential reward is twice your risk.

8. Combining with Other Indicators:

• Use technical indicators such as:
  • RSI: If the Doji forms at an overbought or oversold level, it strengthens the signal.
  • Moving Averages: A Doji near a key moving average (e.g., 50-day or 200-day) can signal a potential reversal.