What is a Doji candle pattern and how to trade with it?


The Doji candlestick, additionally known as a Doji star, exhibits indecision between consumers and sellers within the crypto market. Such a candlestick is confirmed on a technical evaluation chart when the opening and shutting costs are almost identical.

What’s a Doji sample on the candlestick chart?

In easy phrases, a Doji exhibits that an asset’s consumers and sellers offset one another. In doing so, any makes an attempt to push up the price by the consumers get thwarted by the sellers. Equally, efforts to crash the costs from the sellers’ finish get foiled by the consumers.

Finally, each events deliver the worth to a pivot stage. So, for instance, when Bitcoin (BTC) opens and closes at $20,000 on a specific day even when its worth seesawed between $25,000 and $15,000 all through the given24-hour interval.

Doji candlestick illustration

So the $25,000 worth stage — or the intraday excessive — represents the Doji’s higher wick, and the $15,000 worth stage — the intraday low — represents the candlestick’s decrease wick.

How does a Doji candle work?

Doji candlesticks have traditionally helped merchants predict market bottoms and tops as a relaxed earlier than the storm of types.

For instance, a Doji candlestick that types throughout an uptrend might signify bullish exhaustion, i.e., extra consumers transferring to the sellers’ facet, usually resulting in a development reversal.

It’s legitimate to notice that the Doji sample doesn’t essentially imply that there’ll all the time be a development reversal. As a substitute, it exhibits indecision amongst merchants about future tendencies.

Therefore, it is higher to substantiate the Doji candlestick sign with the assistance of extra technical indicators. As an illustration, a technical indicator just like the relative power index (RSI) and/or Bollinger bands can provide extra weight to what the Doji sample suggests.

Associated: 5 More Bullish Candlestick Patterns Every Bitcoin Trader Must Know

Kinds of Doji patterns and how one can commerce them

Doji patterns can range relying on the place and size of the shadow. These are the preferred variations:

Impartial Doji

The impartial Doji consists of a candlestick with an virtually invisible physique positioned in the course of the candlestick, with the higher and decrease wicks of comparable lengths. This sample seems when bullish and bearish sentiments are balanced.

Merchants can mix the impartial Doji with momentum indicators just like the RSI or Shifting Common Convergence Divergence (MACD) to assist establish potential market tops and bottoms.

BTC/USD day by day worth that includes Impartial Doji candlestick sample. Supply: TradingView

As an illustration, a impartial Doji incidence in an uptrend coinciding with an overbought RSI (>70) might level to an imminent market correction. Equally, the candlestick’s incidence in a downtrend when the RSI has turned oversold (<30) might precede a market rebound.

Lengthy-legged Doji

The long-legged doji has longer wicks, suggesting that consumers and sellers have tried to take management of the worth motion aggressively sooner or later throughout the candle’s timeframe. 

Normal Doji vs. Long-legged Doji. Source: Commodity.com

Traders should carefully monitor the candlestick’s closing price when identifying a potential long-legged Doji. 

Notably, the Doji is a bearish signal if the closing price is below the middle of the candle, especially if it is close to resistance levels. Conversely, if the closing price is above the middle of the candle, it is bullish, as the formation resembles a bullish pin bar pattern.

Bearish Long-legged Doji illustration

If the closing price is right in the middle, it could be considered a trend continuation pattern. In this case, one can always refer to previous candles to predict future trends.

Dragonfly Doji

The Dragonfly Doji seems like a T-shaped candle with an extended decrease wick and virtually no higher wick. It implies that the open, the shut, and the excessive worth are virtually on the identical stage.

Dragonfly Doji illustration

If the Dragon Doji sample types on the finish of a downtrend, it may be thought of a purchase sign, as proven beneath.

ETH/USD day by day worth chart that includes Dragonfly Doji. Supply: TradingView

Conversely, the candlestick’s occurence throughout an uptrend hints at a possible reversal.

Headstone Doji

A Gravestone Doji represents an inverted T-shaped candlestick, with the open and shut coinciding with the low. The candlestick signifies that the consumers tried to extend the worth however couldn’t maintain the bullish momentum.

Headstone Doji illustration

When the Headstone Doji seems in an uptrend. it may be thought of a reversal sample. Alternatively, its incidence in a downtrend hints at a possible upside retracement.

4 Worth Doji

The 4 Worth Doji is a sample that not often seems on a candlestick chart besides in low-volume situations or very brief durations. Notably, it appears like a minus signal, suggesting that every one 4 worth indicators (open, shut, excessive and low) are on the identical stage over a given interval.

4 Worth Doji illustration

In different phrases, the market didn’t transfer throughout the interval lined by the candlestick. Such a Doji shouldn’t be a dependable sample and might be ignored. It simply exhibits a second of indecision available in the market.

How dependable is the Doji candle sample?

The Doji candlestick sample might not present the strongest purchase or promote indicators in technical evaluation, and may possible be used alongside different metrics. Nonetheless, it’s a helpful market sign to contemplate when gauging the diploma of indecisiveness between consumers and sellers.

Constructing a buying and selling technique based mostly on Doji candle patterns is finest suited to skilled intermediate or skilled merchants who can simply establish and precisely interprthe given indicators.

This text doesn’t include funding recommendation or suggestions. Each funding and buying and selling transfer entails danger, and readers ought to conduct their very own analysis when making a call.