Doji Candle - An Introduction
Doji candlesticks look like a cross, inverted cross or plus sign.
Alone, doji are patterns that are also featured in a number of important patterns. A doji candlestick forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts.
A Doji is quite often found at the bottom and top of trends and thus is considered as a sign of possible reversal of price direction, but the Doji can be viewed as a continuation pattern as well.
The doji represents indecision in the market. A doji is not as significant if the market is not clearly trending, as non-trending markets are inherently indicative of indecision. If the doji forms in an uptrend or downtrend, this is normally seen as significant, as it is a signal that the buyers are losing conviction when formed in an uptrend and a signal that sellers are losing conviction if seen in a downtrend.
Types of Doji
- Neutral: Dojis form when the opening and closing prices are virtually equal. Alone, dojis are neutral patterns.
- Long-Legged: This doji reflects a great amount of indecision about the future direction of the underlying asset.
- Gravestone: The long upper shadow suggests that the direction of the trend may be nearing a major turning point. It is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.
- Dragonfly: The long lower shadow suggests that the direction of the trend may be nearing a major turning point. It is formed when the opening and closing price of the underlying asset are equal and occur at the high of the day.