About doji candle pattern - Meaning, Types and Importance

A Doji (dо̄ji) is a name for a trading session where a security's opening and closing prices are virtually equal, a condition that appears as a candle shape on a chart. Technical analysts study this shape to make assumptions about price behavior. Depending on its formation, Doji candlesticks can resemble a cross, an inverted cross, or a plus sign.

Meaning of Doji

The name "Doji" originally comes from the Japanese word "Doji,", which means "error." The pattern is named from the fact that an asset's opening and closing prices are equal, which is an uncommon event.

A Doji represents market hesitation and signals a possible reversal in either an upward or downward-trending market.

Understanding and recognizing patterns on trading charts for currencies, stocks, futures, or bonds is a key part of technical analysis.

Importance of doji pattern

Candlestick patterns are highly versatile tools for both intraday and swing traders. They help identify potential reversals, show entry points, and define stop-loss levels all at once.

Sometimes, a single candle, such as a Doji, or a series of candles, like Three Black Crows, can offer powerful signals. Recognizing these patterns can help maximize profits in various trading strategies. For experienced traders, these unique candle shapes provide meaningful information, and spotting their increases becomes a high probability for profit.

Types of Doji

Some common types of doji in the stock market are Dragonfly, long-legged, Gravestone, stari, and hammer dojii.

Gravestone Doji

The Dragonfly Doji, when flipped upside down to make a gravestone Doji pattern. In this pattern, The opening, low, and close prices are nearly the same, while the high price is significantly higher. Initially, Buyers push the price upward but by the close, they lose momentum, allowing sellers to pull the price all the way down to the open.

Long-Legged Doji

A Long-Legged Doji makes When the open and close prices are nearly the same, but the prices are extreme highs and lows during the period, causing long wicks. This pattern shows the market indecision both up and down over the period, pushing the price in both directions neither the bulls nor the bears.

Star Doji

A bullish Doji star and a bearish Doji star are two types of star Doji candlestick patterns. They appear both after a price uptrend or downward and help signal different trend orientations.

Bearish Doji Star

A bearish Doji Star appears after a price increase and looks like a plus sign. If the price drops after this candle pattern, it confirms a possible trend reversal of the Doji star. It's called a "star" because its body is positioned above the previous candle's.

Bullish Doji Star

A bullish star Doji, also known as a morning star Doji, appears after a plus sign. The pattern is confirmed if the price rises after the bullish start of Doji. It's called a "star" because its body is lower than the previous candle's.

Hammer Doji

The hammer Doji candle is like a hammer and appears after a price drop. It forms, When the price opens, lowers, and then closes near the opening price. This pattern indicates that buyers are starting at the bottom of the market.

Dragonfly Doji

A Dragonfly Doji candlestick pattern is made When the open, high, and closing prices are the same or very near to the same, but the low price is much lower than the other three prices, a dragonfly Doji candlestick pattern is formed. A genuine dragonfly Doji is quite rare. The majority of dealers allow for minor price differences.