To learn how to identify this informative candlestick pattern and interpret its presence, simply scroll down. Second , there must be an upper shadow, a lower shadow, or both.
The horizontal line of the doji shows that the open and close occurred at the same level, while the vertical line represents the total trading range of the timeframe. As we mentioned above, there are a few variations on the classic doji shape. Although the doji has a simple shape, it signifies an important change in the market: Indecision reigns, as neither the bears nor the bulls are in control. Although the price may have fluctuated throughout the day, it was driven back to its original, opening price.
This moment of indecision, illustrated by the doji, often precedes a reversal trend. Depending on how the market progresses, the doji can be viewed as a bullish or bearish reversal candlestick. Scan through the four samples below, and try to ignore the arrows and labels at first. Do you think you could spot the doji?
And if you had spotted the doji candlestick pattern, would you have made the right decision regarding your trades? After each of these moments of indecision, a reversal occurs. The first is quite significant, while the second is slightly less impressive. The key is to look for doji that follow an uptrend or downtrend.
The initial uptrend ends with a long bullish candle. After a gap up, we see a doji, and then the market gaps down to a long bearish candle. In this case, the pattern successfully predicted a downtrend. Although there are short up and down movements within the larger downtrend, the price does decrease in the long term.
In this example, we see a doji candlestick pattern taking part in an Evening Star candlestick pattern. The bulls are in control and push the price up during the first section, forming an uptrend. In addition, because there is a gap between the doji and the subsequent candle, the odds of a reversal increase. As expected, the price decreases after the appearance of the Evening Star. First, you can identify the pseudo-Dragonfly by its long lower tail. Due to its short upper wick, it is not a true Dragonfly.
However, like a Dragonfly, it predicts a bullish reversal, which ends up being slow but steady. Next, the pseudo-Gravestone lacks authenticity due its short lower wick. However, like a Gravestone, it successfully forecasts a bearish reversal, which occurs shortly thereafter. To confirm the significance of a doji candlestick pattern, wait for the price to trade above the doji if it is located at the market bottom or below the doji if it is located at the market top.
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