Doji candlesticks come in several different shapes and sizes. The Doji candlestick by itself is a neutral pattern. Dojis look like a plus sign or cross. Depending on the price action for the day it can be red (bearish) or green (bullish). Watch our video below to learn how to identify doji candlesticks on stock charts.
Candlesticks were invented by a Japanese rice trader named Homma, who is often known as the godfather of the candlestick chart. He saw correlation between supply and demand and emotion. Thanks to him we now use candlestick charts in our trading. A candlestick chart can tell you a lot about the price action of a stock at a glance.
Every candlestick has four points of data that define it’s shape. Based on the candlestick’s shape, a trader can assume the behavior of the stock’s price. Doji candlesticks form when a stocks open and close are pretty much equal for the day.
It’s a sign of a reversal pattern when coupled with technical analysis. Doji trading provides information on it’s own and as a part of a bigger pattern. Dojis are found in many patterns.
Doji candlesticks are indecision candles. They show a tug of war between buyers and sellers. Price moves up and down during that trading day but close near or even at the opening price.
Hence a standoff occurs. Neither the bulls nor the bears were able to gain control that day. Which gives reason to believe a turning point is developing on that stock.
Every candlestick has an opening, a close and a high and low of day. The filled part is called the real body. The lines coming out the top and bottom are tails or wicks.
The color of the candlestick tells you where the stock opened and closed. The wicks (top) or tails (bottom) are the high and low of the day.
As we stated earlier, doji’s show the tug of war between buyers and sellers with no one winning the day. Price moves that day but no clear direction was given. Therefore it’s in indecision mode. That can be sign of reversal.
It could also be a sign of continuation. Both buyers and sellers are gaining momentum for the stock to continue in it’s current trend.
Candlesticks are super important in the fact that you find support and resistance through their wicks and real bodies. You use technical analysis to determine where a trend in price is going.
Therefore you can’t have one without the other. Doji technical analysis can help you in finding trends. Price moves in trends as well as history always repeating itself.
An indecision candle like doji candlesticks need the help of the technical indicators. Moreover emotions move markets. These indicators and candlesticks can help you see it coming.
Doji candlesticks make up larger patterns. Determining the meat of the real body of a doji depends on price, volatility and the previous candlesticks. That might not seem significant but it can be when you look at the candles around it.
Dojis can be apart of continuation patterns like bull and bear flags. The large candlestick makes up the flag pole. The doji candlesticks make up the flag.
The indecision candles show the buys and sellers are gearing up for the momentum of the continued trend. The trend could continue up as well as down.
Dojis are also apart of reversal patterns such as the head and shoulders pattern. When price breaks the neckline support it falls. Conversely price can head up if it’s an inverted head and shoulders pattern.
Doji trading helps confirm a change in the trend of the pattern. Always get confirmation of a reversal so you don’t get stuck in a fake out, or a bad entry.
Whether you’re a day trader, swing trader or long term trader you need to be able to read what a stock chart tells you. Along with doji candlesticks, patterns and trends.
A day trader is going to trade a stock multiple times in one day. The patterns, trends and candlesticks on an intraday chart will tell them something different than a swing trader.
A swing trader is holding a stock at least overnight. Usually you’re holding that stock 3-6 days put to a couple weeks. The daily chart shows the bigger patterns and trends so you know which way to trade.
It’s important that you take the time to study doji candlesticks and how to use them with technical analysis. A doctor studies their craft as well as a baker. They are always working on getting better – and you as a trader should too!
Trading should be no different. Take the time to learn how to use these tools to your advantage. You’ll become a lethal trader in doing so.
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