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Candlestick Chart Patterns

Trading Guide

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Lavin Bhawnani
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46 views7 pages

Candlestick Chart Patterns

Trading Guide

Uploaded by

Lavin Bhawnani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CANDLESTICK CHART PATTERNS

3.
3. DOJI CANDLESTICK PATTERN

Key Takeaways:
 A Doji is a candlestick pattern that looks like a cross as the opening price and the
closing prices are equal or almost the same.
 When looked at in isolation, a Doji indicates that neither the buyers nor sellers are
gaining – it’s a sign of indecision.
 There are different types of Doji candlestick patterns, namely the Common Doji,
Gravestone Doji, Dragonfly Doji, and Long-Legged Doji.
 Before acting on any signals, including the Doji candlestick chart pattern, one should
always consider other patterns and indicators.
A Doji is a candlestick pattern that looks like a cross as the opening price and the
closing prices are equal or almost the same.

The word Doji is of Japanese origin which means blunder or mistake that refers to
the rarity of having the open and close price be exactly the same.

What is Doji candlestick pattern?


The Doji candlestick pattern can lead to high profits in trading.

The versatility of this candlestick pattern is appreciated by all types of traders for
different time frames.

The Doji candlestick pattern is a formation that occurs when a market’s open price
and close price are almost exactly the same.

How is a Doji candlestick Pattern


formed?
This candlestick is formed when the market opens and bullish traders push prices up
whereas the bearish traders reject the higher price and push it back down.

It could also be that bearish traders try to push prices as low as possible, and the
bulls fight back and push the price up.

The upward and downward movements that happen between open and close form
the wick.

The body is formed when the price closes at or almost the same level as it opened.

What does a Doji tell traders?


When looked at in isolation, a Doji indicates that neither the buyers nor sellers are
gaining – it’s a sign of indecision.
Whereas some traders believe that the Doji indicates an upcoming price reversal
when viewed alongside other candlestick patterns, but this may not always be the
case.

It could indicate that buyers or sellers are gaining momentum for the continuation of
the ongoing trend.

It’s important to remember that the Doji candlestick does not provide as much
information as one would need to make a decision.

Before acting on any signals, including the Doji candlestick chart pattern, one should
always consider other patterns and indicators.

Types of Doji Candlestick Pattern:


There are different types of Doji patterns, namely the Common Doji, Gravestone
Doji, Dragonfly Doji and Long-Legged Doji.

Let us discuss about them:

1. Neutral Doji
This is the most common type of Doji candlestick pattern.

When buying and selling are almost the same, this pattern occurs.

The future direction of the trend is uncertain as indicated by this Doji pattern.

2. Long-Legged Doji
As the name suggests this is a long-legged candlestick pattern.

When the supply and demand factors are at equilibrium, then this pattern occurs.
The trend’s future direction is regulated by the prior trend and Doji pattern.

3. Gravestone Doji
This pattern is found at the end of the uptrend when supply and demand factors are
equal.

At the day’s low, the candlestick opens and closes. The future direction of the trend
is regulated by the prior trend and Doji pattern.

4. Dragonfly Doji
This pattern appears at the end of the downtrend when the supply and demand
factors are at equilibrium.

Doji Example:
In the below chart of Mayur Uniquoters Ltd, we can see that at the end of the uptrend
a Doji is formed which is indicating that the ongoing trend has become certain.

The Doji is then followed by the Dark Cloud Cover candlestick pattern that confirms
that the reversal is going to take place as shown below:
The Doji is then followed by the Dark Cloud Cover candlestick pattern that confirms
that the reversal is going to take place as shown below:

What is the Difference between a Doji


and a Spinning Top?
The spinning top is quite similar to doji, but its body is larger when compared to Doji.

A candle’s real body generally represent up to 5% of the size of the entire candle’s
range to be a Doji candlestick pattern.

Any more than that, it becomes a spinning top. A spinning top candlestick also
signals weakness in the current trend.

If either a Doji or spinning top is spotted, then traders should look to other indicators,
such as Bollinger Bands, for determining the context to decide if they indicate trend
continuation or reversal.

Limitations of a Doji:
In isolation, a Doji candlestick acts as a neutral indicator and provides little
information.

Moreover, a Doji is not commonly formed, thus it is not a reliable tool for spotting
things like price reversals.

When it does occur, it isn’t always reliable either. There is no guarantee that the
price will continue in the expected direction following the confirmation candle.

It is also difficult to estimate the potential reward of a Doji.

Other technical techniques, like other candlestick patterns, technical analysis


indicators, or strategies should be used with this candlestick pattern for making
trading decisions.

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