What is a Doji?

Apr 11, 2008: 5:52 PM CST

Take a moment and educate yourself on what a “doji” is and what it might mean.

A standard doji is a type of candlestick pattern that is comprised of a single ‘candle’ where the open and close price are equal (or very close) but the high and low of the candle are distant from the open and close.

The following images demonstrate what it is and what may have happened in the intraday action to cause the pattern.

There is a virtually infinite set of patterns that can create the pattern, but the goal is to understand the basic ‘psychology’ of the concept that creates the doji.

Traditionally, dojis are known as “indecision” patterns, or sometimes that the market is “confused” or even “tired.” In terms of the ’struggle between bulls and bears,’ a doji would represent a sort of ‘tie’ between the two ‘armies.’

Doji candles often gain significance when they appear after a long trend move up or down, or if they appear at a support or resistance level (such as a trendline).

Dojis can appear on any timeframe, but the pattern gains significance if it occurs on longer timeframe charts, especially if there is a true ‘battle’ between supply and demand.

In the recent crude oil chart I posted, there are a few examples of the doji candle at key turning points in the market:

A word of warning – dojis may have powerful predictive power, but they are never to be traded in isolation. Always check the price structure and any indicators you follow for confirmation/non-confirmation. They can be one more tool in your trading arsenal, but – like everything else – they are not the Holy Grail pattern.

  • Digg
  • del.icio.us
  • Facebook
  • E-mail this story to a friend!
  • StumbleUpon
  • Technorati
  • TwitThis
Comments
  • Hafeez

    Doji can easily be said to be one of the most interesting Candlestick, if we learn to spot it correctly then we could walk away with serious money but we must remember that spotting it accurately is important otherwise if we get into fake we could lose big time. I mostly keep all these stuff to my broker OctaFX, as they have free expert analysis service which sees all this and provides me the best opportunity; it gives me certain profits since last 6 months!

  • True, typically higher oil prices cause consumers to cut-back on spending and unfortunately force small truckers out of business (as well as force other small businesses out). All this creates reduced demand on oil - but there are other factors at play here.

    Dojis do frequently mark (at least) short-term reversals in markets, and I noticed the same pattern you did.

    Hmm. One might call the pattern you described as a type of 'belt hold' but honestly, the pattern would be derived from a deep overnight gap which is then almost totally filled the same day. These create vacuums where one side is literally exhausted or 'capitulated' and then there are no more (in this case) sellers. Ironically, these times occur when the situation is deemed to be 'at its worst.'

    While there may not be an actual candle name for the pattern, you speak of a very powerful signal which has occurred at least twice recently.

  • Anonymous

    looks like another one on $WTIC just this Thursday, April 10.

    I certainly think oil is due for a consolidation period with slack demand (no planes, fewer drivers...)

    Commodities overhyped right now. GLD had a similar doji on Friday. Excellent observation. I'm looking at some other charts very closely.

    My personal favorite is a bottom signal -- the hollow red candle -- as a bottom marker. Is there a name for this one?

blog comments powered by Disqus