In the Japanese candlestick pattern, there are many types of reversal patterns. However, one type of candle that every trader needs to know about is Doji candlestick pattern. So, in today's article, we are going to learn more about the Doji reversal candle as well as the types of Doji candles that you cannot miss through the article below.
What is a Doji candlestick pattern?
A Doji candlestick pattern is a candlestick pattern where the opening and closing prices are approximately equal, or at least the body of the candle is approximately equal. So a Doji candle appears to have a fairly thin body, almost a straight line, forming a plus sign.
The Doji reversal candle represents indecision or a struggle between buyers and sellers. The price goes up and down during trading on reputable Forex brokers, but closes very close to the opening price. And neither the bulls nor the bears side were able to take control and the result was a tie, resulting in a display of Doji candles.
You can consult some more types of candles on Forex through the articles below:
A Doji is formed when the price of a currency pair or commodity… opens and closes at approximately the same level on the chart period in which the Doji occurs. Whether the price may have moved between the opening and closing of the candle. However, the fact that the open and close took place at approximately the same price shows that the market has yet to decide whether bears or bulls have the upper hand.
You should note that the trades that are most likely to be trades made in the direction of long-term trends. When a Doji occurs at the bottom of a retracement in an uptrend or at the top of a retracement in a downtrend. So, the best probability of trading the Doji is in the direction of the trend. In case of an uptrend, the stop will be about 2 pips above the lower shadow of the Doji candle and in a downtrend, the stop will be about 2 pips above the upper shadow.
Types of Doji candlestick patterns
Basic Doji Candles
The basic doji is a single candle that doesn't make much sense. To be able to understand what this candle means. Traders watching previous price action are built on a Doji.
Trading based on the Doji candlestick pattern needs to be put into context. For example, a fundamental Doji in an uptrend may demonstrate part of a continuation of an existing uptrend. But the chart below shows a reversal of an uptrend showing the meaning of the post confirming the arrival of the Doji.
Long-legged Doji candle
The long-legged Doji candle has an upper shadow and a lower shadow of the same length. It reflects the great indecision of the market. The long-legged Doji shows that the trading price is far above and below the opening price of the session. But when it closes it is almost at the opening price. After much volatility during trading, the final results showed little change.
Dragonfly Candle Doji
Dragonfly Doji forms when the open, high and close are equal. The lower price creates a long shadow at the bottom. The shape of the candle is similar to a T due to the lack of an upper shadow. Dragonfly Doji shows selling in control as well as lowering the price most of the time. However, towards the end of the session, purchasing power reappeared and pushed the price back towards the opening and session highs.
The Dragonfly Doji reversal meaning also depends on the previous price action. In addition to future confirmation, Long Lower Shadow provides information on buying pressure.
After a long downtrend, a long black candle or in a support area, a Dragonfly Doji can signal a possible bullish bottom or reversal.
After a long uptrend, a long white or resistance candle, a longer bearish shadow can herald a potential price reversal or decline.
Doji tombstone candle
Tombstone candle occurs when the open, low and close are equal. The higher price will create a long upper shadow. The candle shape looks like an upside down T due to the lack of a lower shadow. The Doji tombstone candle shows the buying force that dominates the transaction and pushes the price very high in the sessions. But towards the end of the session, there was selling force and it pushed the price back to the opening price.
The meaning of the Doji Tombstone candlestick reversal also depends on previous price action and future confirmation. The long upper shadow shows that the attempt to raise the price is facing a major hurdle. But it also shows the emergence of strong buying pressure.
After a long downtrend there is a long black candle or support zone. Candlesticks will show signs of buying pressure. As well as a bullish reversal in the future.
After a long uptrend, a long white candle or resistance zone. The candle shows a failed attempt to raise the price and the possibility of a bearish reversal.
How to trade with Doji candles effectively
We can trade the Doji candlestick pattern with strong support and resistance levels. In these price areas, the trend reversal will be better.
Because in trading and investing, there is a very simple principle. Everything has to have its probability. But when you combine several reversal dice at the same time, your probability of winning will be much better.
And the last thing is to update economic events and Forex signals, it is important to keep an eye on the events of this economic calendar. Because no matter how beautiful this candlestick pattern is, it will either be useless or go in the wrong direction of analysis.
Conclusion
Above is a summary of detailed information about the Doji reversal candlestick pattern. Known about Forex formations and their features. Types of Doji candlestick patterns mentioned in the article. All are featured models. And it is commonly used in forex trading. I hope this article is really helpful for you.