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What is the doji candlestick pattern?

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.

They are often considered to suggest indecision in a given market.

Structure and Types


A doji candle is dominated by wicks with very small bodies or no bodies at all. This formation can occur at the end of a downtrend, as well in the closing stages of the uptrend.

A neutral wick

This means a doji can be classified as both a reversal and a continuation pattern, as it signals there is no firm outcome of who has control over the price action.


This has led some analysts to refer to doji as a ‘transitional’ formation. Doji candles are quite similar to spinning tops as they both send the same message: price neutrality and indecision.

The only real difference between these two is that the former have no body while the latters’ bodies are larger and longer.

 In addition to a classic or ‘neutral’ doji candle, depending on the opening and closing prices, there are three types of doji candlesticks:
  • gravestone
  • long-legged
  • dragonfly.
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Gravestone doji candlestick pattern


A gravestone doji candle is a bearish reversal pattern which takes place at the end of the uptrend. The pattern signals that the bulls have pushed the price action higher, but were unable to force a close near the candle’s high.

As a result, the bears were able to return the price lower and the open, close, and low are all near one another.


gravestone doji pattern

As seen above, the gravestone doji candlestick pattern looks very similar to the shooting star pattern.

Both are seen as reversal bearish patterns with the only difference being that the gravestone doji has no body, but the open and close are at the same price, or extremely close to the same price, while a shooting star should ideally close at the bottom of the candle with a short (red) body.

The long upper wick signals the loss of control and momentum on the side of bulls and it signals the impending reversal of the price action.
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Long-legged doji candlestick pattern


A long-legged doji, or a ‘rickshaw man’, is similar to a neutral doji, except for the fact that the wicks are longer on either side.

Again, this pattern signals indecision as there is no clear indication about the future trend.

A long-legged doji candlestick pattern


A long-legged doji candlestick formation can occur in both strong uptrends and downtrends. If there is a series of doji candles in a row, the price action suggests that the current trend may be in the closing stages, and a reversal may take place soon.

Dragonfly doji candlestick pattern


A dragonfly doji candlestick formation is the opposite of gravestone doji as the open, high, and close are near the same price in the upper half of the candle.

It can occur in both an uptrend and a downtrend, but it is considered to be stronger when it takes place at the bottom of the downtrend.


A dragonfly doji candlestick pattern

As you can see from the picture, a dragonfly doji looks very similar to a hanging man or a hammer candlestick pattern.

However, the same difference applies to the case of the gravestone doji and the shooting star, as doji has no body but only wicks, while the hanging man and hammer have a short body at the top of the candle.

Both patterns send the same message - the bears may lose the momentum soon and a reversal may be on the cards as the bears failed to force a close near the candle’s low.

You can check all types of doji candlesticks on MetaTrader 4 or 5 and witness yourself how they impact the price action.
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How to trade with the doji candlestick pattern


After looking at the structure and different types of doji candles, let’s now move to equip you with knowledge, as well as tips, on how to trade the doji candlestick patterns.

In the EUR/USD chart below, we take a note of three occasions in which the doji candlesticks are formed. On the top of the chart, we see an uptrend that results in a new high. Previously, there was a series of higher highs and higher lows that created a clean uptrend.

Doji candlestick formation - EUR/USD daily chart


Ultimately, the price creates a long bearish candle, which is followed by a series of ‘neutral’ candles, including a clean doji candle in the middle. We can also classify the other two candles as doji, given that there is almost no body within the candle. 

 

As we noted earlier, doji candlestick patterns signal indecision as the bulls and bears fight over price action control. In this case, the price action rotates lower as doji candles fueled a reversal. Ultimately, the price action creates a deeper pullback.

 

During this pullback, the price action creates a gravestone doji candlestick pattern. We see a long wick that extends higher, while open and close are almost at the exact same price. 

 

The shape of the candle signals that the bulls have lost the momentum as the price action closes near the bottom despite a push higher. As we said earlier, the gravestone doji candle is a bearish pattern that signals reversal, or in this case, confirms the reversal.

 

Finally, the third occasion is similar to the first one. The price action has rebounded in the meantime, and an attempt to continue higher has stalled as the bulls lost the momentum again. 

 

After the long bullish candle we have a spinning top candle which sends the same message as doji - indecision. Both buyers and sellers are fighting and no side could gain the upper hand in this fight. 

 

What follows is a doji candle which reaffirms the same message. Looking at the shape of this candle, it can be either classified as a gravestone doji or a long-legged doji, as the upper wick is longer. Nevertheless, the price action ultimately reverses and dives lower to create a new short-term low. 

 

Trading a doji candlestick formation can be tricky as it is considered to be a neutral pattern. In most cases, the price reverses as the current uptrend has lost the momentum, but the doji can still be seen as a continuation pattern as the “neutrality” is seen as a consolidation before another leg in the same direction takes place.

Combination with other indicators


As is the case with candlestick patterns, doji sends a message, not a trading signal that can be directly applied. This means it is always important to cross-check this signal with other technical indicators and to get at least one more confirmation before entering a trade.

In each of the three examples below, you can consult other candles and indicators to confirm, or reject a message received from the doji candle. For example, the third occasion has seen the creation of the spinning top candle prior to doji.

Hence, two candles are sending the same message, there is an indecision which is creating more damage to bulls as the price action trades in the uptrend. Thus, it seems that the momentum is almost lost and there might be an impending reversal.

Summary


A doji is a neutral candlestick pattern that signals indecision as bulls and bears are fighting over control of the price action. Besides the neutral doji candle which is characterized by no body and wicks on both sides, there are also three other types of doji candlesticks: gravestone, long-legged, or dragonfly.

All of them send a certain message to the trader and it is important to see these messages as a sign rather than a direct trading signal.

Although it is considered to be a neutral pattern, the doji is more likely to result in reversals than continuations, as the indecision creates more damage to the side that has the upper hand, as the momentum slows down.

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