Japanese candlesticks - Dojis
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Doji
Definition: A doji is a structure comprised of a single Japanese candlestick. The opening and closing prices are the same, although there may be a slight difference between the two.
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Characteristic: Dojis can be found in any type of market, whether trending or not, bullish or bearish.
Significance: A doji is an indecision indicator but it is a reversal pattern under certain conditions. Depending on where the doji is formed, it has a greater or lesser significance. In a market without a trend, it should not be taken into account. In a market with a strong trend, the appearance of a doji indicates a possible trend reversal.
Note: A doji is a more relevant candlestick in a bullish market. In a decline, it is less effective. It is also necessary to consider whether or not the asset in question often forms dojis. If this is not the case, then the doji becomes more important.
Invalidation: If the candlestick following the doji does not open on a gap or is not of a different colour from the previous trend, the doji is invalidated.
Doji variants
Long-legged doji
Definition: A long-legged doji is a variation of the doji. The candlestick‘s opening and closing prices occur in the middle of the range, which forms high and low wicks of equal length.
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Characteristic: A long-legged doji can be found in any type of market, whether trending or not, bullish or bearish.
Significance: A long-legged doji is the ultimate indecision pattern.
Long-legged identical opening and closing doji
Definition: A long-legged identical opening and closing doji is a variant of the long-legged doji. The candlestick’s opening and closing prices also occur in the middle of the range, which forms high and low wicks of equal length, but the candlestick has a small central body.
Illustration:
Characteristic: A long-legged identical opening and closing doji can be found in any type of market, whether it is trending or not, bullish or bearish.
Significance: A long-legged identical opening and closing doji reflects very strong indecision.
Gravestone Doji
Definition: A gravestone doji is a variant of a shooting star. The opening and closing price of the candlestick are identical but are made at the lower end of the candlestick.
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Characteristic: A gravestone doji is more often found following a bullish trend.
Significance: A gravestone doji is a reversal pattern and indicates a reversal of the bearish trend. It reflects an overbought market where sellers end up taking over at the end of the period.
Dragonfly doji
Definition: A dragonfly doji is a variant of a hammer. The opening and closing price of the candlestick are identical but are made at the upper end of the candlestick.
Illustration:
Characteristic: A dragonfly doji is more often found following a bullish trend.
Significance: A dragonfly doji is a reversal pattern and indicates a bullish trend reversal. This reflects an over-sold market where buyers eventually gain the upper hand at the end of the period.
