Doji Candlestick Analysis,How to Trade with Doji

  • Doji Candlestick Analysis, How to Trade with Doji

    Candlestick patterns in forex technical analysis are basic analyzes with high accuracy in determining the direction of the trend.

    One form of the candlestick that is often used to identify the direction of the trend is a Doji candlestick. A candlestick is one of the most obvious trading signals in a candlestick pattern.

    Since hundreds of years ago candlesticks chart were used to trade rice commodities in Japan until now this formation is still considered a valid trading signal.

    Doji candlestick meaning is a candlestick pattern whose open price and close prices are the same or almost the same so this candle can not have a body or a very thin body.

    This formation often appears on the trading chart and does not depend on the time frame. Doji might appear on daily, weekly, hourly or 5-minute charts.

    The psychological candlestick Doji is, this pattern is an indecision candle, where neither seller nor buyer dominates, this candlestick pattern implies the market's doubt about which direction the trend is actually moving.

    Doji Candle Explained

    The Doji pattern is a form of candlestick where it has an open price and a close price at the same price, or with a slight difference. Candlestick doji represents a state of indecision between sellers and buyers.

    The Doji pattern is often found at the top and bottom of a trend and is considered the initial signal of a trend reversal. Doji candlestick represent indecision market.

    Doji usually forms at least a few bars after the price moves up or down, which indicates uncertainty the market participants will be taken to where the next price movement is.

    After a candlestick doji appears, the price may move in the direction of the previous trend or vice versa as a trend reversal.

    So the Doji does not always indicate a trend reversal, but it can also indicate a trend continuation depending on the confirmation of the next candlestick bar.

    Doji Candlesticks Type

    The doji itself can be grouped into 7 types of Doji in a candlestick for market trend analysis, and each type of Doji has different meanings, including:

    Gravestone Doji Star

    The first Doji is a Gravestone Doji Star, this Doji is one of the significant bearish reversal candlestick patterns that mainly occurs at the top of the uptrend.

    This pattern has a unique character  that the value of the open price, closing price, and the lowest price are at the same value.

    The Gravestone Doji candle is more like an inverted T letter, it has an upper tail that is longer than the bottom and the open price close price is at the same price or a very slight difference.

    The Gravestone Doji pattern can appear when the trend is up or after a downtrend, if the Gravestone Doji appears after an uptrend, it is called Gravestone Doji on top, conversely if it appears after a downtrend is called Gravestone Doji on the bottom.

    The image below is an example of a Gravestone Doji on top, which is a reversal signal.

    After an uptrend, this Gravestone Doji pattern appears and gives signals to traders that the uptrend might end and the buy position must be closed.

    The Gravestone Doji Star pattern implies the market psychology that occurs when buyers are able to push prices up. However, pressure from sellers was able to push prices back to their opening prices.

    Gravestone Doji Star At the Top

    The gravestone Doji star at the top formation is a bearish pattern formed after the price movement at the highest value.

    After the buyer is strong enough to lift the price up, at that time there is seller pressure with greater volume strength starts to push the price down and the closing price falls on the open price, or with a slight difference between the open price and the close price

    Gravestone Doji Star At the Bottom

    The gravestone Doji pattern can occur in a pattern that is formed either above or below after a strong downward price movement or when the price is at its lowest level. And this pattern indicates a reversal from a downtrend to an uptrend.

    Gravestone Doji on Bottom indicates that seller pressure has weakened and many traders are taking profits, causing dominant buyer's volume causing prices to temporarily rise.

    And surprisingly the price went down again but stuck within the low of the emerging gravestone pattern.

    Long Legged Doji 

    Long-legged Doji is a Doji with a relatively long shadow. Long Ledged Doji is a Doji pattern with a characteristic, has a long swing high and swing low. Simply put, it has an upper and a lower axis that is the same or nearly the same length.

    Long legged Doji on top

    The long-legged Doji at the top is a legged doji formed at the top when uptrend. If Long-legged Doji appear on the top is signal a bearish pattern.

    Long Legged Doji at The Bottom

    Unlike the Long legged doi on top, this is the opposite which is a pattern that is formed under a downtrend. And a bullish signal is likely to start.

    The appearance of a long-legged Doji often occurred in down trend, it can be a sign that the trend has begun to weaken, marked by the appearance of a long-legged Doji, which is an indecision candle.

    After the appearance of the long-legged Doji from the example image above is a reversal signal, after the appearance of a bullish fight after the Long-legged Doji, then the trend finally rose from bearish to bullish.

    Dragonfly Doji 

    Dragonfly Doji pattern is a pattern that is formed when the opening and closing prices are near or high. The dragonfly pattern is a candlestick pattern that shows the bear's failure to maintain control of the falling price.

    Dragonfly Doji model is the reversion of the Gravestone Doji model, with a long lower tail character and an open and close price above the candle at the same or close to the same price.

    Dragonfly Doji on Top

    The dragonfly pattern in a candlestick is often formed at the top of a trend that tends to be bullish, usually formed after the price has reached its highest value. And a possible bearish signal.

    But it’s not necessary true, sometime Dragonfly Doji appearn on top, but giving weak signal, we need to focus on next candlestick as confirmation.

    Example of the picture above when a Dragonfly Doji candlestick appears, but it doesn't automatically signal a trend reversal, the price still goes up before finally going down.

    Dragonfly at The Bottom

    The dragonfly at the bottom pattern is the reversion of the dragonfly at the top formation which is a Doji pattern formed in the bottom area of a trend that tends move to bearish and is a likely signal  bullish will appear.

    All Doji patterns indicate an indecision candle, in the example above appears the Dragonfly Doji at the bottom after a downward trend. Then you need to pay attention to is the next candlestick, it shows that the close of the candlestick is bullish, so it can be said that the reversal signal from the Dragonfly Doji is valid.

    How to trade using doji

    From the description above, we already know the nature of the Doji Candlestick, which is a signal to determine the direction of trading based on the previous price trend.

    If the previous trend of price movements was up, after the appearance of the Doji, traders assumed that there would be a reversal to the downtrend so they would to open sell.

    Conversely, if the previous movement trend is down after the Doji appears, traders assume that there will be a reversal to the uptrend so they are open buy.

    But will prices always move according to this assumption? Of course not.

    The market is what moves prices. Therefore, in order to stay safe in applying the Doji trading method, here are some useful tips when you are trading the Doji candlestick strategy.

    Take a Look at the candlestick type after Doji

    Doji reflect market uncertainty, sometimes Doji give false signals that are misleading.

    In theory after the Doji appears to be a reversal signal, sometimes the price consolidates or continues the previous trend.

    To minimize these false signals, so many Price Action experts recommend validating Doji signals first.

    The easiest way is to wait for the candlestick type to form after the Doji.

    If the Doji that is formed is a bullish reversal signal then wait for the candlestick after the Doji is confirmed to be bullish. Once valid, you can open Buy.

    Image below giving you detail strategy

    Pay attention to overbought and oversold conditions

    The Doji trading method is very flexible and can be applied in various conditions, including overbought and oversold markets.

    If a Doji Candle appears at the momentum, you can take action in accordance with the rules of the Doji candlestick strategy.

    You can take advantage of several Momentum Indicators to find overbought and oversold conditions.

    Many indicators represent this function such as the Commodity Channel Index (CCI), Relative Strength Index (RSI), William Percentage Range (W% R), or Stochastics.

    Examples of Candle Doji patterns that are formed in overbought or oversold

    Place Stop Loss Above/Below the Wick

    Stop Loss is part of risk management to protect when prices move against predictions.

    The way to determine the stop loss in the Doji strategy is to place a stop loss using the Doji Candlestick pattern axis as a reference.

    The wick is a long line that results from price movements on the Candlestick.

    Traders can place Stop Loss according to the top or bottom level at the end of the Candlestick axis.

    Image below as example how to place stop loss:

    The example in the picture above is for a Doji stop loss below the axis because this condition gives a Buy order option, if the Doji appears as a bearish signal then the stop loss is placed above the wick.

    How to determine profit target

    Profit targets relate to exit points, this is also an important part of forex trading activities, setting targets that are too high is also less effective because dynamic prices can cause reversals before targets are reached.

    Then how to determine the target in the Doji candlestick trading strategy? There are several methods that you can apply, first you divide the order into two or three orders with small lots and specify three profit targets for each order.

    The advantage of this method is that if one order is reached and the other two are not reached, you can still modify both orders when you get floating profit at the break-even point.

    The second way is by taking a risk-reward ratio, making a comparison of stop loss and a target profit of at least 1: 1.

    The third way is by using indicator tools to determine exit points, for example, RSI to look for overbought oversold, Fibonacci to find the gold ratio level.


    The Doji formation is one way to do a market analysis in a simple way, this is one of the forms of candles that occur in the stock market and the forex market. When Doji appears the Doji pattern only shows market consolidation.

    There is no definite indication whether the possibility of reversal or forwarding can be identified from the candlestick Doji.

    Some expert giving suggestion to  wait until the next candle confirms the Doji signal. This could be one reason why pin bars are more popular than Doji.

    The shape of the Doji may be somewhat similar to a pin bar but what distinguishes it is the open price and the close price between the two.

    Meanwhile, the appearance of the Doji tends to not be able to give a definite signal about the possibility of further price movements.

    Apart from these disadvantages, Doji can still be used as a reliable price action analysis tool. In fact, this candle pattern can also be used to complement your trading strategy, especially methods that focus on finding reversal opportunities.

    And after all, arranging to trade requires money management and risk management plans in the trading plan, analyzing using a Doji pattern is only one market approach, while the market conditions are dynamic, and sometimes the Doji signals give false signals.