Doji Candlestick Pattern

The doji is a candle where the open and close are virtually the same, creating a cross-like shape. It represents indecision between buyers and sellers. While not a strong directional signal on its own, a doji at a key level after a strong move can precede significant reversals.

Types of Doji

There are several doji variants, each telling a slightly different story:

• Standard Doji — small body with roughly equal upper and lower shadows. Pure indecision.
• Long-Legged Doji — very long shadows on both sides. Extreme indecision with high volatility.
• Dragonfly Doji — long lower shadow, no upper shadow. Similar to a hammer; bullish implications after a decline.
• Gravestone Doji — long upper shadow, no lower shadow. Bearish implications after an advance.

A doji by itself is not a trade signal. It is a warning that the balance of power between buyers and sellers has shifted to equilibrium. The candle that follows the doji is what confirms direction.

Using Doji Candles in a System

The practical approach to doji trading:

• After a strong trend — a doji at resistance (in an uptrend) or support (in a downtrend) can signal exhaustion
• Wait for confirmation — enter only when the next candle closes in the expected reversal direction
• Combine with volume — a doji on declining volume suggests genuine indecision rather than just a pause

Doji candles are most useful as filters rather than triggers. For example, you might avoid entering a trend-following trade if a doji has just formed, suggesting momentum is fading.