Business, Legal & Accounting Glossary
The Doji is a commonly found pattern in a candlestick chart of financially traded assets in technical analysis.
It is characterised by being small in length – meaning a small trading range – with an opening and closing price that are virtually equal.
A doji is a type of candlestick where the day’s opening price and closing prices are the same or nearly the same. A basic doji candlestick shape resembles a plus sign. Other possible doji shapes include a cross, inverted cross, or “T.” By itself, a doji represents market indecision about the direction of a stock or security; buyers and sellers are equally active, but neither establishes control. The length of shadow or shadows on a doji reveals the price range of trading activity. A normal doji reveals prices moved within a relatively narrow range, while a doji with long shadows reveals prices moved across a wide range. In combination with other candlesticks, a doji forms patterns that can reveal an impending reversal of sentiment about a stock. For example, a doji that follows a white candle, signals that buying interest in a stock is weakening, while a doji following a black candle, signals that selling pressure is weakening.
The Doji is generally considered the most important candlestick. The Doji often signals the beginning of a trend reversal and is therefore very important to recognize. There are three special types of Doji: Dragonfly Doji, Gravestone Doji and Long-Legged Doji.
The Doji candlestick forms when a stock’s open and close are the same price or very close to the same price. The length of the upper and lower shadows can vary, and the resulting candlestick looks like, either, a cross, inverted cross, or plus sign.
The Dragonfly Doji candlestick is a special type of Doji where the open and close price are at the high of the day.
The Gravestone Doji candlestick looks like an upside-down “T”; the opposite of the Dragonfly Doji. The Gravestone Doji has a long upper shadow and no lower shadow, and it forms when the open, low and close are equal.
The Long-Legged Doji is a Doji candlestick with a long upper and lower shadows with the Open and Close price in the middle of the day’s trading range.
The Doji candlestick conveys a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session but close at or near the opening level.
The appearance of a Doji after a long uptrend is a warning that the stock price has peaked or is close to peaking. After a long downtrend, the exact opposite is true.
The Bearish Doji Star and Bullish Doji Star incorporate the Doji candlestick within larger formations.
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This glossary post was last updated: 23rd March, 2020 | 32 Views.