If the candle appears following an uptrend, it could mean that the momentum may be slowing or even reversing. On the contrary, it could simply mean momentary indecision among investors. So, a single Doji candle is not enough to determine future price trends of security.

close price

The appearance of a doji after a price advance warns of a potential price decline. The open, high, and close prices match each other, and the low of the period is significantly lower than the former three. A white candlestick depicts a period where the security’s price has closed at a higher level than where it had opened. If we analyze the Dow Jones Index chart above, we see that we have an area with 2 Doji candles.

The “classic way” to this chart would be to short the Doji pattern. The main trend is determined by the crossover between the on-balance volume and the 200-period exponential moving average. You can determine the trend with other indicators, depending on your preference. I like to use minimum one leading indicator in my trading setup, and the on-balance volume is perfect for that. There is a conservative technique through which you can make this pattern generate some good, valid signals.

  • The neutral doji candlestick pattern can be a useful tool in determining market sentiment, as it can signal a potential change in price momentum in any direction.
  • As with stocks and other securities, the formation of a doji candlestick pattern can signal investor indecision about a cryptocurrency asset.
  • Alright, you can see that it opens and closes at the same level.
  • Depending on past price action, this reversal could be to the downside or the upside.
  • You can see the open and the close is the same level, this is why you see a straight line on the chart.

In an upswing, the pattern is likely to have a bearish implication, while in a downswing, it is likely to have a bullish implication. A four-price candlestick indicates indecision and does not predict future movements. However, if there are multiple four-price doji, and they fall on a small slope, it is a bullish pattern. And, if the slope is small and positive, it is a bearish pattern.

Once you are in the trade you can use the low of the doji as a stop. There are a few different types of doji candles and we will cover them in more detail below. We recommend backtesting all your trading ideas – including candlestick patterns. For example, multiple doji at after a long bullish market and overbought signals from the MACD indicator indicate a lower risk of going short after a breakdown of the trend.

Odd Lot Trade: What Does It Mean For Stocks?

A stock that closes higher than its opening will have a hollow candlestick. If the stock closes lower, the body will have a filled candlestick. One of the most important candlestick formations is called the doji. A doji candlestick is a neutral indicator that provides little information. They are rare, so they are not reliable for spotting things like price reversals.

I accept FBS Agreement conditions and Privacy policy and accept all inherent with trading operations on the world financial markets. In general, the more complex and sophisticated your Doji trading strategy is, the more likely you are to make informed trading decisions. Just make sure you test what you’re doing if you don’t want to end up in a situation where your account balance is damaged. It formed this bearish engulfing pattern showing rejection of lower prices. So for example, if the market is in a downtrend, you can look for it to pull back to a moving average, pullback to previous support turned resistance, or whatever. Because understanding the meaning is what matters, not trying to memorize the exact candlestick pattern.

bearish reversal

The long-legged doji forms quite frequently on the price charts of all kinds of assets – be it stocks, indexes or exchange-traded funds . Therefore, it may be a lot tempting to go for trading every single long-legged doji that gets formed. By now you already know that a doji candlestick only forms when supply and demand forces are at equilibrium. As a result, it is common for a tug of war to exist which means there will be no clear winner between bears and bulls.

Doji Are More Important in a Top or Bottom of A Trend

So, instead of picking tops and bottoms, it’s wiser to use Doji candles to trade with the trend. A Doji candle pattern appears when the open price and close price for a determined period are the same, or very close to being the same. When it forms near round numbers or around previous levels of support and resistance, pivot points or Fibonacci retracements, Doji candles offer traders decent entry points.

In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. Gravestone Doji – A bearish reversal occurring at the top of uptrends. So, for example, when Bitcoin opens and closes at $20,000 on a particular day even if its price seesawed between $25,000 and $15,000 throughout the given24-hour period.


A member of the Japanese candlestick charts, the Doji candlestick pattern is a single-candle chart pattern. It marks a possible reversal in the market in either an upward or downward direction and opens up a potential trading opportunity. The below example is a doji pattern appearing on monthly timeframes on BTCUSD price charts. The doji was formed at the high in November 2021 at $68,000 and is the current Bitcoin all-time high.

What happens after a doji candle?

Both occur when the opening and closing prices are very close together, resulting in a small body with long upper and lower wicks. The Doji is a transitional candlestick formation that signifies an equilibrium in the opposing market forces — what some analysts may call indecision between bulls and bears. It simply shows that at the end of the trading session, neither the bulls nor the bears can claim victory because the price closed around the same price level where it opened. The morning Doji star is a three-candlestick pattern that works in a strong downtrend. If, after a long bearish candle, there is a gap down and a formation of the Doji candlestick, it’s a signal of possible reversal up. In order to confirm this, the third candle should be bullish and open with a gap up covering the previous gap down.

Again, your stop loss should be placed below the swing low, and you can look to take profits at the nearest swing high. The next thing in the market is that it rallied higher back into the swing high and into the area of resistance. And the market closes slightly higher which is a variation of the Dragonfly Doji. First and foremost, you can trade a Dragonfly Doji at support. They are often considered to suggest indecision in a given market.

Neutral Dojis can occur at any time during an uptrend or a downtrend and may signal a change in direction, but they are not always reliable. First of all, you should determine what type of Doji you see on the chart. Each type has its own special meaning, so this step is crucial.

Strategy #2: Doji and Trend Trading

A Doji candlestick can also form when prices fall lower first but subsequently move up. Some analysts consider a Doji candlestick to be a sign of reversal – either upward or downward. The Doji candlestick often occurs during consolidation after the security move has been significantly higher or lower.

Doji Candle Pattern Trading Strategy: The Power Of Dojis

Primarily used in daily charts, Doji candlesticks can be spotted in any chart interval and across all timeframes. Every trader should be equipped with a wide range of technical tools to define the market direction. These also include candlestick patterns, though not all of them can show the exact market movement. A Doji pattern shows market uncertainties, not price direction. Some may ask, “Why identify a candlestick that doesn’t predict price movement?” This article will reveal the purpose of the Doji candlestick, its types and how to use it in trading. A doji candlestick is formed when the market opens and bullish traders push prices up while bearish traders reject the higher price and push it back down.