TYPES OF DOJI: THE PATTERNS ALL TRADERS SHOULD KNOW
A Doji candlestick signals market indecision and the potential for a change in direction. Doji candlesticks are popular and widely used in trading as they are one of the easier candles to identify and their wicks provide excellent guidelines regarding where a trader can place their stop.
In this article we explain how Doji patterns are formed and how to identify five of the most powerful and commonly traded types of Doji:
- Standard Doji
- Long legged Doji
- Dragonfly Doji
- Gravestone Doji
- 4-Price Doji
HOW ARE DOJI CANDLESTICK PATTERNS FORMED?
Dojis are formed when the price of a currency pair opens and closes at virtually the same level within the timeframe of the chart on which the Doji occurs. Even though prices may have moved between the open and the close of the candle; the fact that the open and the close takes place at almost the same price is what indicates that the market has not been able to decide which way to take the pair (to the upside or the downside).
Keep in mind that the higher probability trades will be those that are taken in the direction of the longer-term trends. When a Doji occurs at the bottom of a retracement in an uptrend, or the top of a retracement in a downtrend, the higher probability way to trade the Doji is in the direction of the trend. In case of an uptrend, the stop would go below the lower wick of the Doji and in a downtrend the stop would go above the upper wick.
TOP 5 TYPES OF DOJI CANDLESTICK PATTERNS
1. Standard Doji pattern
A Standard Doji is a single candlestick that does not signify much on its own. To understand what this candlestick means, traders observe the prior price action building up to the Doji.
Trades based on Doji candlestick patterns need to be taken into context. For example, a Standard Doji within an uptrend may prove to form part of a continuation of the existing uptrend. However, the chart below depicts a reversal of an uptrend which shows the importance of confirmation post the occurrence of the Doji.
