Testimonials appearing on this website may not be representative of other clients or customers and is not types of doji candlestick a guarantee of future performance or success. Traders would also take a look at other technical indicators to confirm a potential breakdown, such as the relative strength index (RSI) or the moving average convergence/divergence (MACD). In this example, the gravestone doji could predict a further breakdown from the current levels to close the gap near the 50- or 200-day moving averages at $4.16 and $4.08, respectively.

The upper tip of the vertical line of the doji represents the highest price of the security for the day and the bottom tip represents the lowest price for the day. The horizontal line of the doji pattern has the closing price on one side and the opening price on the other side. All Doji candlesticks frequently occur at market tops and bottoms or at major swing highs and lows acting as a reversal pattern. Their emergence at the end of a trend hints that a trend reversal may be on the horizon. However, Dojis can also be viewed as trend continuation patterns in some instances, representing a pause before the trend resumes. In technical analysis, Doji candlestick also known as the Doji star is a unique price formation that signals indecision in the market.

A red doji indicates that the closing price of the security is less than the opening price of the security. The difference between the opening and closing price is, however, very minute. As a result of the push and pull between the bulls and the bears, the closing price ends up being equal to or very close to the opening price of the security. For example, 2 green Doji candlestick in a row shows the tug-of-war between buyers and sellers continuing for another candle period.

Spinning tops and dojis can look similar, but their real bodies are bigger than a doji candlestick. It’s essential to note that they often share a similar story, suggesting that the trend is about to reverse. The second example is a bearish doji near the top of a rising wedge pattern.

• In this article, we will look at the doji pattern in detail, highlight the different types of doji candles, explain how to trade them and much more!
• Despite modern trading algorithms and lightning-fast markets, these simple shapes still capture something algorithms can’t — emotion.
• The Doji candlestick pattern appears fairly often across different markets and timeframes, especially during periods of low volatility or market indecision.
• Multiple Doji variations—gravestone, dragonfly, and long-legged—offer more specific information.
• Doji candlesticks are also not very efficient when used in timeframes shorter than one duration.

Like the doji, it also features shadows or wicks that are longer than its body but with some directional movement. A spinning top could imply a slightly stronger movement in a particular direction but like the doji is best paired with other confirmation signals and patterns. A doji is characterized by a very small or nonexistent body, meaning the opening and closing prices are virtually the same with long shadows. This showed that prices fluctuated significantly within the trading period, but closed near the opening price. The market was in an uptrend before the formation of doji at the resistance zone.

Doji Star (Neutral Doji)

And for the sake of brevity, I’ll refer to the common doji sometimes as just the doji candlestick, and I’ll provide links and backtest results to the other similar doji patterns below. Although this is often viewed as a signal for a potential bullish reversal, after the doji’s appearance, the price continues its downward trajectory. The long-legged doji has long upper and lower wicks, with the price opening and closing at the same level.

How to read Doji Candlestick Pattern in Technical Analysis?

A doji candlestick can be identified by its distinct shape which resembles a plus sign or a cross symbol. Investors and traders make interpretations about price movements when they witness the cross or plus-shaped doji candlestick. The image below depicts the three kinds of doji patterns and their colours based on opening and closing prices.

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• Doji and spinning top candles are commonly seen as part of larger patterns, such as the star formations by technical analysts.
• Doji candlesticks are commonly seen during market indecision, reversals, trending moves, and volatile periods.
• Trading Futures and Options on Futures involves a substantial risk of loss and is not suitable for all investors.
• Each type, based on the shadows’ length and surrounding context, hints at specific sentiments like bullish or bearish indecision.

Step 3: Determine Your Stop Loss (SL) Level

From basics of stock market, technical analysis, options trading, Strike covers everything you need as a trader. Arjun is a seasoned stock market content expert with over 7 years of experience in stock market, technical & fundamental analysis. Arjun is an active stock market investor with his in-depth stock market analysis knowledge. Arjun is also an certified stock market researcher from Indiacharts, mentored by Rohit Srivastava. The real action happens on the lower intraday timeframes – that’s where the battle between bulls and bears unfolds. Analyzing the 5-minute, 15-minute, or 1-hour charts can provide more clues about the shifting dynamics behind a Doji candle.

When a doji appears after a prolonged uptrend, this signals that buying pressure may be weakening. In this case, the trend may slow down and form a price correction. This means that price may start to decrease until it hits a support level, before continuing its uptrend.

The Evening Star Pattern: A Potential Warning Sign for UK Investors?

A trader who spots a Gravestone Doji following a prolonged bullish trend can use AI-driven moving averages to help determine the best time to exit or enter a short position. We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere. That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. The importance of controlling your emotions and having a proper mindset when trading. Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff.

What Happens After Doji Candlestick Patterns?

The day after the Doji, TSLA opened lower and printed a strong bearish engulfing candle—confirming the reversal signal. Over the next 5 trading sessions, the stock declined approximately 7.4%, falling from $206 to around $191 before stabilizing. This pattern is characterized by a long lower shadow but has no or very little upper shadow. AI Signals empowers traders with real-time AI-driven analysis, making it easier to spot Doji patterns instantly and seize optimal trading opportunities. By harnessing AI-powered insights, traders can improve their decision-making and boost profitability, regardless of their experience level. A confirmation candle, whether bullish or bearish, that appears after a Doji pattern adds more weight to the signal.

Having a doji as the pattern’s second candle strengthens the possibility of a successful bullish reversal. Hence, it has a bearish directional bias as it may be a precursor to a possible bearish reversal. That said, similar to the dragonfly variant, a confirmation candle is still needed. A Doji star means the status at which security closing and opening prices become equal during the observation period.

Use Supporting Indicators

To identify a Doji candlestick pattern, look for a candlestick with a small or nonexistent body and upper and lower shadows of varying lengths. A bullish doji pattern is typically a reversal pattern found at either the base of a downtrend or near support levels. It will often be preceded by a bearish candlestick, followed by a bullish one, which completes a morning star reversal pattern. This picture shows a bullish and bearish doji example on a daily chart of $D, Dominion Energy. The first example is a bear flag, with the doji signaling a bearish reversal. Traders would enter a short position once the price fails the flag and use a candle close above as a stop level.

In fact, you’re free to forget all of the names as long as you can look at a candlestick and understand what it means. Tools like chart markup and trading indicators can reveal even more. And once you’ve chosen your asset(s) and trading style, the full chart narrative truly comes into focus. You can never be 100% sure how a candlestick will look at the end of the time period. Within the time period of the candle, price ended up exactly where it began.

The two patterns that follow the doji confirm that the price reversal is imminent. As seen in the image the prices start to decline after the appearance of the doji. Upon seeing the doji, investors and traders must first apply other technical indicators like the stochastic indicator or the relative strength index (RSI) to confirm the trend prediction.