One of the special candlestick patterns that often appear on the Japanese candlestick chart is the Doji. Doji is special from the form to the meaning it brings. In trading, experienced traders always give it special attention when it occurs. So what is a Doji? How to trade Forex effectively with Doji candlestick? This article will answer for you.
What is a Doji candlestick?
Doji candlestick is a special Japanese candlestick pattern without a body. Its opening and closing prices are equal (or very close) to each other. In a certain candle time period, the price will fluctuate up and down. But in the end, the price will return to the opening price. Since then, a Doji candlestick appears with a long shadow and without a body.
Meaning of the Doji candlestick pattern
A Doji shows the market’s struggle at that time. Initially, the bulls of the market may take the initiative to push prices higher. After that, the buying force weakens and the price is pulled down strongly by the bears.
This process continues and until the candlestick closes, neither side dominates. The price is pushed back to the opening level. Often, experienced traders will make a decision based on what happens after a Doji candle appears.
Important types of Doji
There are four common types that you need to master.
Doji Star: is a standard Doji, with the same opening and closing prices. The upper and lower tails of the candles are of normal length. This Doji occurs when the market does not have very strong fluctuations.
Long-legged Doji: has an upper and lower tail that is longer than the standard pattern. This type occurs when the market has strong fluctuations. Only when prices continuously change direction and increase or decrease within a large amplitude can a Long-legged Doji be created.
Dragonfly Doji: has a very long lower tail, but (almost) no upper tail. Opening price = Closing price = Highest price. Looking at the Japanese candlestick chart, they are very much like a dragonfly. This Doji pattern shows the dominance of the sellers when the candlestick closes. When appearing at the end of a downtrend, the Dragonfly Doji can be a bullish signal in the market.
Gravestone Doji: has a very long upper tail, but (almost) no lower tail. Opening price = Closing price = Lowest price. On the chart, they are very similar to a gravestone and show the dominance of the sellers when the candlestick closes. When appearing at the end of an uptrend, the Gravestone Doji can be a bearish signal in the market.
How to trade Forex effectively with Doji candlestick
In Forex, the two types of Doji that provide the most effective trading signals are Dragonfly Doji and Gravestone Doji. When a Gravestone Doji appears, open a SELL order and when a Dragonfly Doji appears, open a BUY order.
Open a BUY order as follows:
+ Entry Point: As soon as the price finishes creating a Dragonfly Doji candlestick
+ Stop-Loss: At the nearest support level.
+ Take-Profit: when the price touches old resistance levels that have been formed in the past.
Open a SELL order as follows:
+ Entry Point: As soon as the price finishes creating a Gravestone Doji candlestick
+ Stop-Loss: At the nearest resistance level.
+ Take-Profit: When the price touches old support levels that have been formed in the past.
When the Doji Star or the Long-legged Doji appears, this is a warning signal that the market is indecisive. It’s best to stay out of the market when they appear.
Notes: These are only test transactions to test the effectiveness and get familiar with Doji candlesticks on the Japanese candlestick chart. You should do this on a Demo account to keep your capital safe.
The Doji candle is a candlestick pattern that many successful traders study and apply in trading. Mastering this important signal will help you a lot in trading. Get acquainted with them with a Demo account today to understand these special candlesticks. I wish you successful transactions.