What is a Doji candle pattern and how to trade with it?

The Doji candlestick, additionally known as a Doji star, exhibits indecision between consumers and sellers within the crypto market. This kind of candlestick is confirmed on a technical evaluation chart when the opening and closing costs are nearly equivalent.

What is a Doji pattern on the candlestick chart?

In easy phrases, a Doji exhibits that an asset’s consumers and sellers offset one another. In doing so, any makes an attempt to push up the worth by the consumers get thwarted by the sellers. Similarly, efforts to crash the costs from the sellers’ finish get foiled by the consumers.

Ultimately, each events deliver the worth to a pivot degree. So, for instance, when Bitcoin (BTC) opens and closes at $20,000 on a explicit day even when its worth seesawed between $25,000 and $15,000 all through the given24-hour interval.

Doji candlestick illustration

So the $25,000 worth degree — or the intraday excessive — represents the Doji’s higher wick, and the $15,000 worth degree — the intraday low — represents the candlestick’s decrease wick.

How does a Doji candle work?

Doji candlesticks have traditionally helped merchants predict market bottoms and tops as a calm earlier than the storm of kinds.

For instance, a Doji candlestick that types throughout an uptrend might signify bullish exhaustion, i.e., extra consumers transferring to the sellers’ aspect, sometimes main to a pattern reversal.

It is legitimate to observe that the Doji pattern doesn’t essentially imply that there’ll at all times be a pattern reversal. Instead, it exhibits indecision amongst merchants about future traits.

Hence, it is higher to affirm the Doji candlestick sign with the assistance of extra technical indicators. For occasion, a technical indicator just like the relative energy index (RSI) and/or Bollinger bands can provide extra weight to what the Doji pattern suggests.

Related: 5 More Bullish Candlestick Patterns Every Bitcoin Trader Must Know

Types of Doji patterns and how to trade them

Doji patterns can range relying on the place and size of the shadow. These are the most well-liked variations:

Neutral Doji

The impartial Doji consists of a candlestick with an nearly invisible physique positioned in the midst of the candlestick, with the higher and decrease wicks of comparable lengths. This pattern seems when bullish and bearish sentiments are balanced.

Traders can mix the impartial Doji with momentum indicators just like the RSI or Moving Average Convergence Divergence (MACD) to assist establish potential market tops and bottoms.

What is a Doji candle pattern and how to trade with it?
BTC/USD each day worth that includes Neutral Doji candlestick pattern. Source: TradingView

For occasion, a impartial Doji prevalence in an uptrend coinciding with an overbought RSI (>70) might level to an imminent market correction. Similarly, the candlestick’s prevalence in a downtrend when the RSI has turned oversold (<30) might precede a market rebound.

Long-legged Doji

The long-legged doji has longer wicks, suggesting that consumers and sellers have tried to take management of the worth motion aggressively in some unspecified time in the future through the candle’s timeframe. 

What is a Doji candle pattern and how to trade with it?
Normal Doji vs. Long-legged Doji. Source: Commodity.com

Traders ought to rigorously monitor the candlestick’s closing worth when figuring out a potential long-legged Doji. 

Notably, the Doji is a bearish sign if the closing worth is under the center of the candle, particularly if it is shut to resistance ranges. Conversely, if the closing worth is above the center of the candle, it is bullish, because the formation resembles a bullish pin bar pattern.

What is a Doji candle pattern and how to trade with it?
Bearish Long-legged Doji illustration

If the closing worth is proper within the center, it might be thought of a pattern continuation pattern. In this case, one can at all times refer to earlier candles to predict future traits.

Dragonfly Doji

The Dragonfly Doji seems like a T-shaped candle with a lengthy decrease wick and nearly no higher wick. It implies that the open, the shut, and the excessive worth are nearly on the similar degree.

What is a Doji candle pattern and how to trade with it?
Dragonfly Doji illustration

If the Dragon Doji pattern types on the finish of a downtrend, it may be thought of a purchase sign, as proven under.

What is a Doji candle pattern and how to trade with it?
ETH/USD each day worth chart that includes Dragonfly Doji. Source: TradingView

Conversely, the candlestick’s occurence throughout an uptrend hints at a potential reversal.

Gravestone Doji

A Gravestone Doji represents an inverted T-shaped candlestick, with the open and shut coinciding with the low. The candlestick signifies that the consumers tried to improve the worth however couldn’t maintain the bullish momentum.

What is a Doji candle pattern and how to trade with it?
Gravestone Doji illustration

When the Gravestone Doji seems in an uptrend. it may be thought of a reversal pattern. On the opposite hand, its prevalence in a downtrend hints at a potential upside retracement.

Four Price Doji

The Four Price Doji is a pattern that not often seems on a candlestick chart besides in low-volume situations or very quick durations. Notably, it appears to be like like a minus signal, suggesting that each one 4 worth indicators (open, shut, excessive and low) are on the similar degree over a given interval.

What is a Doji candle pattern and how to trade with it?
Four Price Doji illustration

In different phrases, the market didn’t transfer through the interval lined by the candlestick. This kind of Doji is not a dependable pattern and could be ignored. It simply exhibits a second of indecision available in the market.

How dependable is the Doji candle pattern?

The Doji candlestick pattern could not present the strongest purchase or promote indicators in technical evaluation, and ought to seemingly be used alongside different metrics. Nevertheless, it is a helpful market sign to contemplate when gauging the diploma of indecisiveness between consumers and sellers.

Building a buying and selling technique based mostly on Doji candle patterns is greatest suited to skilled intermediate or skilled merchants who can simply establish and precisely interprthe given indicators.

This article doesn’t include funding recommendation or suggestions. Every funding and buying and selling transfer includes danger, and readers ought to conduct their very own analysis when making a determination.