Forex Investment and Currency Trading

Doji are probably the most significant of the candlestick patterns, because their basic shape forms the basis for many other candlestick patterns. A doji occurs when the close is the same as the open, generating a candlestick with no real body – simply a vertical line with a cross on it.

On days when the close is only a few points apart from the open, generating a candle with an extremely small real body, you can take a bit of artistic license and consider it a potential doji depending on the preceding candles. If the prior days’ candles were composed of long real bodies, that increases the likelihood that the very small real body should be viewed as a doji. Whenever you spot a doji after a daily close, you should take note of it and begin looking for signs of reversal.

Doji are significant because they represent indecision and uncertainty. By looking at a doji, you can see that both buyers and sellers had a pretty good go at it, but they ended up finishing the day essentially unchanged, meaning neither side is dominating. One of the classic doji is where the open and close are the same and about in the middle of the day’s trading range. The longer the upper and lower tails are and in a doji, the greater the sense of uncertainty displayed by the market and the more likely the prior trend is to be ending.

A double doji occurs when two doji appear in successive periods. The increased uncertainty associated with a double doji tends to signal that the subsequent price move will be more significant after the market’s indecision is resolved.

On it own, a doji is considered neutral. You need to wait for subsequent price action, such as trend-line break, to confirm that the doji is signaling a reversal.