Doji Candle is the simplest candlestick pattern there is. But don’t be fooled by its extreme simplicity. It is still able to provide valuable data on the chart and help forex traders make better and well-informed decisions.
This candlestick pattern is neither a bearish reversal nor a bullish reversal. This means when this pattern is formed, it wouldn’t be able to tell you where the market is necessarily headed toward. For this reason, the Doji patterns, and indeed all its different variations, are known to be indecision patterns – i.e. patterns that indicate the uncertainty of the market, a condition in which neither bulls nor bears can pull the market toward themselves.
But perhaps this makes Doji patterns even more important for forex traders. Moments of indecision in the market are rife with opportunity. Maybe not right then and there. But if understood properly, they can be a sign of an upcoming change, though a distant one.
Therefore, in this article, we are going to discuss everything about Doji and all its different types.
What Exactly Is a Doji Candlestick Pattern?
As was mentioned at the beginning, the Doji pattern is the simplest pattern among all candlestick charting patterns. In fact, it has the most peculiar form – almost none!
Well, it is normal that a candlestick pattern would be defined by the shape of a candlestick which of course would also include a body, a body that, by the way, plays a significant role in the interpretation of patterns. However, the same cannot be said for the Doji patterns. Doji is known for its lack of body.
Therefore, this candlestick pattern is only made from lines, which are basically the candlestick’s wicks or shadows.
In the next section we will see how this form can even be possible. But before that let’s discuss the meaning of Doji.
All Doji patterns are signs of indecision in the market. But what should you do by finding out there is indecision in the market? Keep reading to find the answer.
How Is a Doji Candlestick Pattern Formed?
We said that the Doji pattern has no body and only lines. But how?
First of all, the fact that it doesn’t have a body means the opening and closing prices are exactly the same. Remember, it is the difference between the open and close prices that make the length of the body for a candlestick.
But in a Doji pattern, these two figures are exactly the same, which precisely shows why it is an indecision pattern. There is no push or pull toward any specific direction in the market. Therefore, it opens and closes with the same price.
Although, between these opening and closing there would normally be some variation, which is how the wicks or shadows of a candlestick are formed. These shadows would normally signal the high and low prices.
It moves a bit up and down, but in the end it is all the same. For this reason, a generic Doji pattern would look like a cross.
But there are of course different types and variations.
Different Types of Doji Candlestick Pattern
This is the basic form of a Doji pattern. The so-called “cross” shape. The opening and closing prices are the same. And there is little price variation in both directions.
The long-legged Doji is very similar to the Doji star, in that the opening and closing prices are the same. But the upper and lower wick or shadow are longer. This means, even though there is indecision in the market, there was a higher degree of price fluctuation during the formation of this pattern.
The dragonfly Doji, like all the other Doji patterns, has the same open and close. But with an important difference. With this pattern, there is no high recorded. It means prices do not rise any more than the opening or closing. For this reason, this pattern does not have an upper shadow or wick.
Although there is a low price registered for it, so it would normally have a long lower shadow.
This Doji pattern would normally be seen at the end of a downtrend. It signals that while prices are being pushed down, i.e. the lower shadow of the candle, there is not much push left, i.e. the closing of the pattern much higher than the low and equal to the opening.
For this reason, the dragonfly Doji is normally taken to be a sign that a reversal might be forming. But please keep in mind that like all the other Doji patterns, the dragonfly still has a hint of indecision. So don’t consider it a powerful bullish reversal.
Gravestone Doji is the exact opposite of the dragonfly Doji. This means there is no low price registered for this pattern. However, it has a long upper wick, which is indicative of the overall trend in the market.
But the high does not close the pattern. In fact, even though a really high price might be registered during the formation of this pattern, it closes with a much lower price, the same as the opening price.
This means the bullish push might just be running out of fuel. So, again, even though it is an indecision pattern, the gravestone Doji can potentially be a distant sign that the bullish run is near its final stages.
Four Price Doji
The four price Doji is normally not seen, especially in markets where there is great volatility like the forex market.
Perhaps this is the most unique pattern of Doji. Because in addition to the opening and closing prices being the same, the high and low are also the same as the open and close.
More precisely, there is no variation in prices. So the ultimate pattern is only a flat line.
The four price Doji is the strongest indecision pattern on the candlestick chart.
The Benefit of using Doji Candlestick Patterns
There is a great advantage in using the Doji pattern – time.
It provides forex traders with time. This means it gives them space to think things through and reconsider their strategies and position. It is because Doji patterns indicate indecision.
This indecision will give you the freedom not to hurry and be able to take the time to think about your positions.
And this is true wherever you would encounter a Doji pattern. If you see this pattern during an uptrend, then it might tell you that the speed of the bullish run is slowly coming down. Not too quick, so you still have time.
At the same time, if you see this pattern during a downtrend, then it means selling pressure is easing off. Maybe because there is a bit of buying pressure forming.
But in either case, remember that there is still indecision. So, again, time is the gift Doji can give you.
The Doji candlestick is a group of patterns that have the simplest form of all candlestick patterns. The open and close of these patterns are the same. This means these patterns do not have a body, and only a flat line. There might be fluctuations toward up or down, thus registering upper or lower shadows for Doji patterns. Overall, these patterns are regarded as signals for indecision in the market.