How to Trade Doji Candlestick Pattern

“Imagine a candlestick that speaks volumes in just a single glance – meet the Doji. In the world of trading, Doji candlestick patterns are like secret messengers, quietly revealing market indecision and potential turning points. Let’s dive into the fascinating world of Doji candlesticks, where a small body can hold the key to big trading opportunities.”

An Overview of the Doji Candlestick Pattern

A Doji Candlestick Pattern is a type of candlestick that has a cross-shaped pattern on it. It looks like a star or a cross, but it’s actually a doji. It happens when a security goes up or down in price over a period of time, but then closes right back down to where it started. The pattern has a small or no body, and the top and bottom wicks are the same length.

What does it look like?? ????

• Opening and closing prices for the period are pretty much the same, so it’s not like there was a big difference between buyers(bulls) and sellers(bears).

• The Doji’s body is usually very small or not at all, which means there’s a lot of trading going on in the session. The top and bottom wicks, or the lines that go up and down the body, can be different.

• If a Doji appears after a long upswing or downswing, it can have a different effect on the price in the future.

Trading using Doji Candlestick Pattern

1. Determine the Pattern:

• Start by searching for Doji candle patterns on the price charts.
• Look for candles with very small or nobody and starting and ending prices that are almost the same.

2. Confirmation:

• Sometimes Doji patterns just don’t give you enough info to make a trading decision. Use other technical indicators like momentum or trend lines to back up what you’re reading.
• You can also use a chart pattern like a candlestick pattern to confirm what you’re seeing.

3. Stop loss and Risk Management:

• Set a stop-loss order to reduce the risk of loss.
• Set a take-profit level to lock in profit when the trade goes up or down.

4. Monitor the Trade:

• It is important to monitor the trade closely after entering it. As the market changes, adjust the level of the stop-losses and take-profits accordingly.

Also Read –> How to Trade Rounding Top and Rounding Bottom

Type of Doji candles

1. Dragonfly Doji

• Dragonfly Doji, also known as Dragonfly Candlestick, is a unique “T” shape on the price charts of technical analysis. Dragonfly doji’s have a longer lower wick on price charts, suggesting that sellers initially forced the price down significantly during the trading session. However, the buyers were able to regain control and the closing price was close to the opening price of the session.

2. Star Doji

• A Star Doji consists of three candles, Morning Doji, Evening Doji, and Doji.
• The Morning Doji has a bearish first candle, indicating a down trend
• The Evening Doji has a bullish first candle, indicating an uptrend.
• The Doji indicates uncertainty, and the third candle indicates a shift towards a down trend.
• Traders use the Morning Doji and Evening Doji patterns as a signal for trend reversals, but they usually wait until other technical indicators are confirmed before making a trading decision.

3. Long Legged Doji

• A long-legged Doji candle is one of the most widely used candlesticks in technical analysis. A long-legged candlestick has a small body and the opening and closing price are very close to each other or very close to the other.
• The main difference between a short-legged candle and a long-legged candle is that the long-legged candle has a very high upper and a very low wick. The long-legged candle indicates extreme price volatility.
• The short-legged candle indicates market indecision. The bulls and the bears do not have a clear advantage.

4. Gravestone Doji

• Gravestone dojis, also known as Gravestone Low or Gravestone High, are one of the most commonly used bearish indicators in trading by technical analysts.

• A Gravestone Doji is formed when the price on the open side, the price on the low side, and the price on the close side are all close to each other with a long uptick.

• The long uptick means that the bullish trend that started at the beginning of the session is being overtaken by the bearish trend by the end of the session.

• The Gravestone Doji is often formed just prior to a long-term bearish trend.

Trade Based on Doji Signals

1. Reversal Trade

• A Doji that breaks out after a long bullish trend and is confirmed by other signals may indicate a likely bullish-to-bust trend reversal. In this case, you may want to sell your short or exit your long position.

2. Bullish trade

• On the other hand, a Doji that appears after a long period of decline and is supported by other indicators could be a sign that a bullish trend could be re-emerging.Therefore, traders may want to go long or close out short positions.

     3. Consolidation Trade

• If the Doji candle is forming within the trading range or in a market that does not have a clear trend, it is a time of hesitation and uncertainty.
• During this time, you can either avoid trading or use strategies that are designed for markets that are range-bound or sideways.

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Conclusion

• All technical indicators or patterns work on their own, they provide multiple signals and information about different elements for a trader to successfully trade.
• However, the best way to succeed in technical analysis is to combine multiple technical instruments and only trade when they are in conjunction.
• Doji candle works best when it is used in conjunction with other technical instruments.

(Frequently Asked Question) FAQ