What is a Doji Candlestick Pattern?
Doji Candlestick formation is one of the most important and meaningful Forex candlestick patterns. It shows the lack of determination of price action. Though it shows relatively big volatility in its long wicks.
How does a Doji Candlestick look like?
Doji Candlesticks have a small body and relatively long upper and lower wicks.
A perfect Doji Candlestick usually has a body of a flat horizontal line, so it looks like a cross or a plus sign.
Where does a Doji Candlestick appear?
Doji Candlestick appears when the market is not sure whether it should form a bullish or a bearish candlestick. This means that traders are divided into selling and buying, thus the candlestick is very hesitant to take a clear bullish or bearish bias.
What should I do when I see a Doji Candlestick?
- If the market is in a rally (going up), the Doji Candlestick is a sign that this rally is losing its strength, and the price might be falling, so it should be a bearish signal. (You should be looking for a selling opportunity).
- If the market is going down, the Doji Candlestick is a sign that the market could rise again, so it should be a bullish signal. (You should be looking for a buying opportunity).
- In a range-bound market, the Doji Candlestick usually has a neutral meaning, you should be waiting for the next candlestick formation to determine your position on the currency pair, or at least be sure you have other factors on your chart to support your trading bias.
More tips on Doji Candlestick formation:
- If the Doji Candlestick appears after a big bullish candlestick in an uptrend, that should be a strong signal of a reverse to a downtrend.
- If the Doji candlestick appears after a big bearish candlestick in a downtrend, that should be a strong signal of a reverse to an uptrend.
- A Double Doji Candlestick (two Doji Candlesticks right beside one another) is a strong signal of trend reverse.
- If you have lots of Doji Candlesticks on the specific chart, this means they are less effective. You should not depend on them in your trading decision, or at least wait for more signals to appear before having a trading bias.