Doji Candlestick Patterns

Doji Candlestick Patterns

A Doji is a type of candlestick pattern that often indicates a coming price reversal. This pattern consists of a single candlestick with a nearly identical open and close.

In this guide, we’ll explain what the doji candlestick is and how traders can interpret it.

How Candlestick Patterns Work

Before we dive into the doji, it’s important to understand how candlestick patterns work. Candlestick charts were originally developed in Japan in the 17th century, but are now common across all countries and all markets.

How Candlestick Patterns Work

A candlestick consists of four components: the opening price, the closing price, the high price, and the low price for a given time interval. The opening and closing prices are shown as a rectangle and the high and low prices are shown as lines extending above and below that rectangle. Candlesticks enable traders to see at a glance whether bulls or bears won out during the time interval covered by the candlestick.

Candlestick patterns may consist of one or more candlesticks and provide information to traders about trend continuation, reversals, and other price action.

What is the Doji Candlestick Pattern?

The doji candlestick pattern consists of a single candlestick in which the opening and closing prices are nearly the same. This results in a candlestick that may look like a plus sign, a capital T, or an inverted capital T depending on the price action during the interval covered. The word “doji” means mistake in Japanese, referring to the fact that doji candlesticks are relatively rare.

While a single doji is a candlestick pattern in itself, it’s worth noting that dojis are also part of many multi-candlestick patterns.

Types of Doji Patterns

There are three main types of doji patterns.

Types of Doji Patterns

The long-legged doji is a neutral doji pattern. The opening and closing prices are near the center of the candlestick, with roughly equal-length lines representing the high and low prices of the interval. This type of doji suggests indecision or that neither bulls nor bears were able to take control.

The dragonfly doji is a bullish doji pattern. The opening and closing prices are near the top of the candlestick, with a long line coming out of the bottom to indicate the low of the interval. This pattern occurs when bears temporarily push the price down, but bulls strengthen and push the price back up before the candlestick interval closes.

The gravestone doji is a bearish doji pattern. The opening and closing prices are near the base of the candlestick, with a long line coming out of the top to indicate the high price. This pattern typically occurs when price action starts out bullish, but then bears take over and push the closing price back to the opening price by the end of the interval.

How to Trade Doji Candlestick Patterns

Traders can use doji candlestick patterns along with other candlestick patterns and technical indicators to spot trading opportunities. First, it’s important to identify the pattern at hand. A single doji provides important information about whether price action is bullish, bearish, or neutral. It may also be part of a multi-candlestick pattern that provides even more information.

It’s also important to make sure that doji candlesticks occur in the proper context. Doji patterns provide useful information when price action is trending, but they may not be indicative of any sudden changes when price action is sideways.

Traders also need to be careful not to confuse a doji pattern with a spinning top candlestick. Spinning tops have more separation between the opening and closing prices, and they typically indicate a trend continuation rather than a reversal.

Once you spot a doji, it’s good to look for confirmation before acting on it. Dojis are far from foolproof when used on their own. Following a dragonfly doji, for example, look for bullish price action and strong trading volume to confirm a bullish reversal. You should also check that technical indicators like MACD and RSI point to a bullish reversal before trading based solely on a dragonfly doji.

Doji Reversal Pattern

Conclusion

Doji candlestick patterns are single candlesticks that have nearly identical opening and closing prices. These candlesticks may indicate a bullish or bearish trend reversal. Traders should interpret doji candlestick patterns cautiously and look for confirmation in trading volume, price action, and other technical indicators before acting on them.


The information contained herein is intended as informational only and should not be considered as a recommendation of any sort. Every trader has a different risk tolerance and you should consider your own tolerance and financial situation before engaging in day trading. Day trading can result in a total loss of capital. Short selling and margin trading can significantly increase your risk and even result in debt owed to your broker. Please review our day trading risk disclosuremargin disclosure, and trading fees for more information on the risks and fees associated with trading.

Related Content

How Do Market Makers Make Money?

How Do Market Makers Make Money?

If you've ever traded stocks, you've probably used a market maker. Market makers are the middlemen of the stock market, and in most cases, these are firms, individuals, and or large corporations that facilitate transactions. For example, if you wanted to buy shares...

How Long Can You Hold a Short Position?

How Long Can You Hold a Short Position?

Investors can hold onto long positions for years or even decades without running into problems. But most short positions are much shorter in duration – a few months to a few years at most. There are several practical limitations that limit how much time traders can...

How to Interpret Level 2 Data

How to Interpret Level 2 Data

Level 2 data is important for traders because it shows the full range of open orders for a stock, not just the current best bid and ask price. Using Level 2 data, you can identify potential trades before they become apparent on technical charts or get additional...

How Does Inflation Affect the Stock Market?

How Does Inflation Affect the Stock Market?

Inflation can have a big impact on the stock market, leaving unprepared investors in for a bumpy ride. In this article, we’ll explain why inflation impacts the stock market and take a closer look at how the stock market has reacted to inflation in the past. What is...

Ascending Triangle Chart Patterns

Ascending Triangle Chart Patterns

An ascending triangle chart pattern is a bullish technical pattern that typically signals the continuation of an uptrend. They can signal a coming bullish breakout above an area of resistance after it has been tested several times. In this guide, we’ll explain what...

How Do You Borrow Stocks?

How Do You Borrow Stocks?

The ability to borrow stocks is essential for short selling. The process of borrowing a stock is distinct from the process of buying a stock and depends heavily on your brokerage. In this article, we’ll take a closer look at how borrowing stocks works. Why Traders...