The Doji & Their Types

Doji & Their types

What are doji candles and how to use them in trading?

A Doji shows a balance of supply and demand, implying that neither the bulls nor the bears are prevailing in the market. Doji is a very powerful reversal candle as it creates market indecision between the bears and the bulls.

A Candlestick with no real body or a very small real body is known as a Doji. The Doji has a single candle

Doji Anatomy

the doji red and green candle
The Doji

Psychology About Doji

Doji is considered as most popular reversal candle and it is easy to identify as you can see in the above figure.

In the case of an uptrend, the bulls have won previous battles during the session as prices have moved higher. Now if you encountered a Doji at the top of the uptrend, it indicates the indecision in the market and there is a possibility of a trend reversal.

The same can be said for a Doji that appears in a downtrend market, indicating that the bears may be struggling to dominate the market, and thus a reversal uptrend may be occurring.

We can say clearly—

  • Doji's are easy to identify.
  • Doji's can give an idea of financial market direction.
  • Doji indicates a lack of volatility.
  • Doji provides a limited view.

Types of Doji

There are mainly 5 types of Doji candles that are commonly traded and popular in the financial market—
  1. Standard Doji
  2. Long-Legged Doji
  3. Gravestone Doji
  4. Dragon-fly Doji
  5. 4- price Doji
a chart representing all types of doji candlesticks
Types Of Doji

1. Standard Doji

This candle forms when buying and selling activity is at equilibrium
a chart representing standard Doji candlesticks
Standard Doji

Characteristics of Standard Doji

  • Color doesn't matters(either green or red).
  • Both shadows must be present.
  • There is no or only a very little actual body.
  • The pricing for open and close are the same or very close.
  • Standard Doji provides a limited view.
  • Lack of volatility.

Insight of Standard Doji

Neither bullish nor bearish.

Psychology of Standard Doji

  • Indicates neither bulls nor bears have a monopoly on the market.
  • It doesn't signify much on its own in comparison with other types of Dojis.
  • To understand standard Doji candles, traders must observe the prior price action.
  • Try not to trade alone this type of candle (wait for confirmation before entering the trade).

2. Long-Legged Doji

As you can see in the figure A Long-Legged Doji is a long Candlestick pattern.

Long-Legged Doji candle is formed when the securities open and close at same or nearby price with high volatility during the session
a chart representing long-legged Doji candlesticks
Long-Legged Doji

Characteristics of Long-Legged Doji

  • The open and closing prices are the same or very close.
  • It makes no difference what color you use (either green or red).
  • The candle's range is wider than that of other Dojis.
  • Both shadows must be present.
  • No real body or a very small real body.
  • Long-Legged Doji provides a limited view.
  • Generally, the volatility of the Long-Legged Doji candle is higher than other Doji's.

Insight of Long-Legged Doji

There may be a chance that securities prices will increase following the appearance of the Long-Legged Doji candle.

Psychology of Long-Legged Doji

  • The prior trend and the Doji pattern determine the trend's future direction.
  • Alone this signal is not strong, wait for other conditions to be confirmed before entering the trade.
  • Long-Legged Doji indicates that during the session of the candle price action dramatically moved up and down.
  • Indicates indecision between buyers and sellers with high volatility.
  • Provide limited view.

3. Gravestone Doji

As you can see in figure A Gravestone Doji is formed.

Gravestone Doji candle is formed when the securities/stock open and close at the session's low
a chart representing gravestone Doji candlesticks
Gravestone Doji

Characteristics of Gravestone Doji

  • Gravestone Doji is usually formed at the top reversal.
  • Day's low and close prices are the same or very close.
  • Color doesn't matter(either green or red candle).
  • No lower shadow or wick with long upper shadow or wick.
  • No real body or a very small real body.
  • Long-Legged Doji provides a limited view.
  • The body is at the bottom of the candle.

Insight of Gravestone Doji

A Gravestone Doji is a bearish pattern that indicates reversal followed by a downtrend in the price action.

Similar to its upright twin brother, it possibly signifies a reversal of the current trend.

Psychology of Gravestone Doji

  • The buyers dominate early on, but all of a sudden sellers came and dominate the market.
  • Gravestone Doji candle gives the signal that there is a possibility of a trend reversal.
  • Generally indicates that bearish movement might be start followed by a downtrend.
  • Indicates indecision between buyers and sellers with high volatility.
  • Alone it provides a limited view.
  • Wait for confirmation before entering the trade as the signal is not strong.
  • Gravestone Doji is more bearish and thus more effective at a market top.

4. Dragonfly Doji

As you can see in the figure A DRAGONFLY Doji is formed.

A Dragonfly Doji is formed when the securities or stock open and close at the session's high (session can be of any time frame monthly, weekly, daily, or any time)
a chart representing Dragonfly Doji candlesticks
Dragonfly Doji

Characteristics of Dragonfly Doji—

  • Dragonfly is generally found at the bottom reversal.
  • Opposite of Gravestone Doji.
  • Day's high and close are same or nearby.
  • Color doesn't matter(either green or red candle).
  • No upper shadow or wick with long lower shadow or wick
  • No real body or a very small real body.
  • It also provides a limited view.
  • The body is at the top of the candle.

Insight of Dragonfly Doji

A Dragonfly Doji can appear either at the top of an uptrend or the bottom of a downtrend and indicates the potential for a change in direction.

Psychology About Dragonfly Doji

  • The sellers dominate early on, but all of a sudden buyers came and overtake the market.
  • Dragonfly Doji is usually found at the bottom reversal.
  • Dragonfly is more bullish, and thus more effective at a market bottom.
  • Indicates the possibility of a trend reversal.
  • Alone it provides a limited view.
  • Wait for confirmation before entering the trade as the signal is not strong.
  • Dragonfly candle forms a strong reversal pattern in the down-trending market.

5. 4-Price Doji

As you can see in the figure a 4-price Doji is formed.

A 4-price Doji is formed when open, close, low, and high all are equals.
Generally formed in the pre-market session
a chart representing 4-Price Doji candlesticks
4-Price Doji

Characteristics of 4-Price Doji

  • Appears like a short candle.
  • No upper shadow/wick.
  • No lower shadow/wick.
  • Color doesn't matter(either green or red candle).
  • No real body or a very small real body.
  • Absolute lack of volatility.
  • The buy and sell were the same during the session.
  • Usually, the volume is very low.
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TECHNICAL ANALYSIS

Insight of 4-Price Doji

This form of Doji indicates the ultimate in indecision. It is a unique pattern signifying an extremely quiet market.

Psychology About 4-Price Doji

  • Neither sellers nor buyers were dominating the market during the session.
  • 4-price Doji usually can be seen during the pre-market and after trading hours.
  • It is typically suggested to avoid the stock or assets that are creating the 4-price Doji because they will cause a shortage of liquidity in the future.
  • Trading 4-price Doji needs strict discipline and emotion-free trading.
  • Wait for confirmation before entering the trade as the signal is not strong
  • Use of proper stop-loss, profit level, and capital management is advised.
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