Doji Candlestick Shapes Explained
A doji candle is a pattern that forms during a trading session when an asset’s opening and closing prices are nearly equal. Doji shapes are often read as components of larger patterns, and they don’t appear very often under normal conditions. The word “doji” itself means “mistake” or “error” in Japanese candlestick terminology, because it’s rare for the open and close to land at almost the same level. A doji forming can point to indecision in the market, where neither buyers nor sellers are in control.
There are several doji candlestick shapes, and most of them tend to look like a cross or a plus sign, with almost no real body and comparatively longer shadows. Different types of doji can show up during consolidation periods, ahead of a price reversal, or during trend-continuation phases, depending on the prevailing market conditions.
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Doji Candlestick Shapes
The information you can draw from spotting this pattern depends on the context in which it occurs, and it varies depending on the specific doji type you’re looking at. There are five commonly defined doji shapes that point to different market directions and climates:
Standard Doji (Doji Star)
A standard doji, on its own, may not explicitly point to data you can apply to market direction. Seen in the context of the prevailing trend, though, it can signal a shift in market direction. If the doji forms after a bullish candle, that can point to an uptrend, while a move below the bottom of the pattern (with a high lower than the top of the doji) can point to selling.
Conversely, a downtrend may follow this type of doji, which can in turn be followed by a bullish candle in a buying scenario.
Gravestone Doji
This type of doji has a long upper shadow with little to no lower wick, and it can point to buyers initially succeeding in pushing prices higher, only to fail to hold that ground by the close.
If this happens during an uptrend – especially at a resistance level or a Fibonacci retracement – it can point to a bearish reversal.
On the other hand, if it happens in a downtrend at a support level, it can point to a bullish reversal.
Dragonfly Doji
The dragonfly doji is the mirror-image scenario of the gravestone doji, with a long lower wick and a thin upper shadow. It can appear at the top of an uptrend or the bottom of a downtrend, respectively, and can point to a change in market direction.
The small upper shadow shows that price didn’t move much above the opening level throughout the session. When it forms at the bottom of a downtrend, it often works as a bullish signal.
Four Price Doji
This doji type is a single straight line with no upper or lower extensions, because price didn’t move in either direction throughout the whole period. It can point to a high degree of indecision or a quiet market, where the high, low, open, and close all sit at the same level – which is where the pattern gets its name.
Long-Legged Doji
In this doji type, the wicks extend further on both sides of the candle’s body, showing that price swung significantly during the session, with heavy competition between buyers and sellers.
Even so, neither group managed to take control of the market, which is what produces the long-legged doji.
When analyzing this doji type, the focus is on where the close sits relative to the midpoint of the wick.
If the close sits above the midpoint, it can resemble a bullish pin bar and point to an uptrend if it forms near the asset’s support levels. The reverse scenario can point to a bearish pin bar if it forms at resistance levels.
Conclusion
Technical analysts believe that all known information about a stock is reflected in its price – meaning the price is highly efficient and important. Even so, past price performance has no bearing on future price performance, and an asset’s actual price may have no relation to its true value. That’s why technical analysts use tools to help sort through high volatility and find the more probable trade setups, including doji candlestick shapes.
Doji shapes can work as useful reversal indicators when spotted at the tail end of an uptrend or a downtrend.
That said, a doji may not be a strong signal when it occurs in the early stages of a trend. In those cases, it may simply point to indecision.
One more thing to flag: if the prior trend continues after the doji, the pattern acts as a false reversal signal that could tempt you to keep holding your current position. Factoring in the prevailing market conditions and other analysis criteria matters too when you use doji shapes to make trading decisions.
Frequently Asked Questions
What does a doji candle indicate?
A doji candle indicates a balance of power between buyers and sellers, since its opening and closing prices are nearly equal. There are several doji shapes, depending on where the body sits relative to its shadow.
What is the Hanging Man candle?
The Hanging Man candle is the inverted version of the hammer, since it looks exactly the same but appears at the end of an uptrend and signals a reversal to the downside. Its lower shadow is at least twice the size of the body.
What do Japanese candlesticks mean?
Japanese candlesticks are a chart type that shows price action using four data points: the opening price of the instrument over a given period, its closing price over the same period, and the highest and lowest prices reached during that period. Traders use Japanese candlesticks to help gauge possible future price movement.
What is a reversal candle?
There are many reversal patterns among Japanese candlesticks that point to a change that may happen in the trend, whether uptrend or downtrend. Examples of these patterns include the hammer and the Hanging Man.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Doji candlestick shapes describe potential price behavior based on past data; they do not guarantee future results, and reversal signals can fail or turn out to be false. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors, and you can lose more than your initial deposit. This article may contain affiliate links to trading platforms; we may earn a commission if you open an account through them, at no extra cost to you.
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