Tue. Oct 26th, 2021

This overview is dedicated to the types of Doji pattern and the ways to negotiate it. This is a pattern of chandeliers that occasionally appears in price charts and indicates an upcoming correction or reversal of the current trend.

What is Doji?

Doji is a potential reversal pattern consisting of a chandelier that gave it its name. Doji chandeliers are extremely important elements of technology analysis. It does not have a normal body because the opening and closing prices almost coincide, with a maximum difference of a couple of points.

When a Doji appears on the chart, it indicates a temporary balance, market uncertainty because neither oxen nor bears manage to drive the price this way.

The place where a Doji is formed in the graph is extremely important:

  1. Doji in a pee. When this pattern is in the middle of the range, it gives no trading signals. In this case, a Doji simply reflects the temporary consolidation of quotes before a new price boost begins.
  2. The Doji in the market indicates a possible downward investment. When this pattern appears after growing white chandeliers, this may mean that the upward price push is over. By setting new highs, the oxen reach an area of ​​strong resistance that they failed to open. Now the bears are ready to counterattack, causing a downward correction or even a downward reversal.
  3. Doji in the market lowers signals about a possible upward investment. When the pattern is formed after the black chandeliers have diminished, this may mean that the downward momentum is over. The bears reached a strong level of support where they faced the bulls. Now the latter, seeing that their rivals are weak, are trying to push the market up.

However, a Doji that appears at the highs or lows of the chart indicates a possible reversal.

In addition, a Doji chandelier could be part of other investment patterns; a pattern also called Doji can later be transformed into another combination of investment chandeliers.

A Doji pattern, schematic
A Doji pattern, schematic

Types of Doji

There are several types of Doji patterns. Regardless of certain differences in their appearance, the business principle will be the same.

Doji normal

The pattern has relatively small shadows of about the same size.

How is a Doji
How is a Doji

Long-legged doji

This pattern has very pronounced shadows, while matching opening and closing prices tend to be closer to the high or low (asymmetrically).

How is a long-legged Doji
How is a long-legged Doji

Rickshaw Doji

This is a type of long-legged Doji: its body in the middle of two equal shadows (symmetrically).

How is a Rickshaw Doji
How is a Rickshaw Doji

Tombstone doji

This is, again, a type of long-legged Doji: it has a long upper shadow and no lower shadow

How is a Tombstone Doji
How is a Tombstone Doji

Dragonfly Doji

This is a type of long-legged Doji: it has a long low shadow and no upper shadow.

How is a Dragonfly Doji
How is a Dragonfly Doji

Doji at four prices

Closing, opening, high and low prices fully match. This is a rare pattern in liquid financial instruments, but characteristic of illiquid assets.

How is a Doji at four prices
How is a Doji at four prices

Doji trading

In fact, there are two main ways to negotiate with Doji: aggressive and conservative.

  • The aggressive form presupposes that you start trading right after the pattern appears, with no further confirmations. These tactics allow you to enter the trade with a good Stop / Profit ratio, although the signals are less reliable.
  • The conservative way of trading requires waiting for a real price reversal after the pattern appears. A chandelier analysis guru, Steve Nixon, recommends waiting a session (chandelier) or two to show you the price direction.

Purchase signal

A signal to buy forms at the minimum of the price chart. The commercial algorithm is as follows:

  • After a drop, a Doji appears at the local minimum of the price chart.
  • You can open aggressive purchases when the price exceeds the maximum of Doji. Place a Stop Loss at the bottom of the chandelier. In this case, the pattern is less likely to be reliable, but the Stop / Benefit ratio is better.
  • Buy conservatively after a white chandelier with a large body appears; must close above the Doji maximum. In this case, prices are likely to continue to rise, but the Stop / Profit ratio is worse.
  • Take the gains when the price reaches a significant resistance level or shows signs of downward reversal.
Buy signal when trading with Doji
Buy signal when trading with Doji

Signal for sale

A sell signal appears at the highs of the price chart. The negotiation algorithm is as follows:

  • In an upward movement, a Doji is formed at the local maximum of the price graph.
  • Sell ​​aggressively when the price drops below the Doji minimum. Place an SL behind the top of the chandelier. As with the purchase, it’s still unclear if the pattern will work, but the Stop / Profit ratio you’ll get is better.
  • I recommend selling conservatively after a solid black candlestick appears, which closes below the Doji minimum. Place an SL behind the top of these chandeliers. In this case, the price is likely to go down more, but the Stop / Profit ratio may be worse.
  • Take the gains after the quotes reach a strong support level or some signs of reversal appear.
Signal to sell when trading with Doji
Signal to sell when trading with Doji

Bottom line

The Doji is a reversal pattern of candle analysis that is formed at the local ends of the price chart. It can work both on its own and as part of other investment patterns.

Before you actually start operating, do a background test to understand Doji and practice it on a demo account.

Learn more about other chandelier patterns in the link article:


Sometimes we include links to online retail stores. If you click on one and make a purchase we may receive a small commission.

Source link

Leave a Reply