How to Trade the Doji Candlestick Pattern

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Doji Candlestick Trading: Main Talking Points

The Doji candlestick, or Doji star, is a singular candle that reveals indecision within the foreign exchange market. Neither the bulls, nor bears, are in management. However, the Doji candlestick has 5 variations and never all of them point out indecision. That is why it’s essential to grasp how these candles come about and what this might imply for future worth actions within the foreign exchange market.

This article explains what the Doji candlestick is and introduces the 5 various kinds of Doji utilized in foreign currency trading. It may even cowl high methods to commerce utilizing the Doji candlestick.

What is a Doji Candlestick and How Does it Work?

The Doji candlesticok, or Doji star, is characterised by its ‘cross’ form. This occurs when a foreign exchange pair opens and closes on the similar stage leaving a small or non-existent physique, whereas exhibiting higher and decrease wicks of equal size. Generally, the Doji represents indecision available in the market however can be a sign of slowing momentum of an present development.

Advantages of Using the Doji Candlestick in Technical Analysis

The Doji star can show invaluable because it gives foreign exchange merchants with a “pause and reflect” second. If the market is trending upwards when the Doji sample seems this might be seen as a sign that purchasing momentum is slowing down or promoting momentum is beginning to decide up. Traders could view this as an indication to exit an present lengthy commerce.

However, it is very important take into account this candle formation at the side of a technical indicator or your explicit exit technique. Traders ought to solely exit such trades if they’re assured that the indicator or exit technique confirms what the Doji is suggesting.

Remember, it’s doable that the market was undecided for a quick interval after which continued to advance within the course of the development. Therefore, it’s essential to conduct thorough evaluation earlier than exiting a place.

Understanding Doji Candlestick Variations

Apart from the Doji candlestick highlighted earlier, there are one other 4 variations of the Doji sample. While the normal Doji star represents indecisiveness, the opposite variations can inform a special story, and subsequently will affect the technique and choices merchants make.

Furthermore, it is extremely unlikely to see the proper Doji within the foreign exchange market. In actuality, merchants search for candles that resemble the beneath patterns as carefully as doable and most of the time, the candles may have a tiny physique. Below is a abstract of the Doji candlestick variations. For an in-depth rationalization learn our information to the totally different Types of Doji Candlesticks.

Doji variations table

How to Trade the Doji Candlestick

There are some ways to commerce the varied Doji candlestick patterns. However, merchants ought to all the time search for indicators that complement what the Doji candlestick is suggesting with a purpose to execute greater chance trades. Additionally, it’s important to implement sound threat administration when buying and selling the Doji with a purpose to minimise losses if the commerce doesn’t work out.

Below we discover varied Doji Candlestick methods that could be applied to buying and selling.

1) Trading with the Doji star sample

The GBP/USD chart beneath exhibits the Doji star showing on the backside of an present downtrend. The Doji sample means that neither patrons or sellers are in management and that the development may presumably reverse. At this level it’s essential to notice that merchants ought to search for supporting indicators that the development could reverse earlier than executing a commerce. The chart beneath makes use of the stochastic indicator, which exhibits that the market is at the moment in overbought territory – including to the bullish bias.

Doji candle appearing at the bottom of a downtrend on GBPUSD signalling potential reversal in the forex pair

2) Using the Dragonfly Doji in Trend Trading

A well-liked Doji candlestick buying and selling technique entails on the lookout for Dojis to seem close to ranges of help or resistance. The beneath chart highlights the Dragonfly Doji showing close to trendline help. In this situation, the Doji doesn’t seem on the high of the uptrend as alluded to beforehand however merchants can nonetheless commerce based mostly on what the candlestick reveals in regards to the market.

The Dragonfly Doji exhibits the rejection of decrease costs and thereafter, the market moved upwards and closed close to the opening worth. This potential bullish bias is additional supported by the truth that the candle seems close to trendline help and costs had beforehand bounced off this vital trendline.

Dragonfly Doji appearing near trendline support

3) Double Doji Strategy

A single Doji is normally an excellent indication of indecision nonetheless, two Dojis (one after the opposite), presents a fair better indication that usually leads to a robust breakout. The Double Doji technique seems to be to reap the benefits of the robust directional transfer that unfolds after the interval of indecision.

Traders can wait till the market strikes greater or decrease, instantly after the Double Doji. In the GBP/ZAR chart beneath, the entry level could be beneath the low of the 2 Dojis with a cease positioned above the highs of the 2 Dojis.

Targets could be positioned at a latest stage of help nonetheless, breakouts with elevated momentum have the potential to run for an prolonged time frame therefore, a trailing cease must be thought-about.

Double Doji strategy

Further studying on buying and selling with candlesticks

  • For extra info on the various kinds of Dojis and what the patterns point out, learn our article on Types of Doji Candlesticks.
  • The Doji is simply one of many many candlesticks all merchants ought to know. Boost your buying and selling information by studying the Top 10 Candlestick Patterns.
  • If you might be simply beginning out in your buying and selling journey it’s important to grasp the fundamentals of foreign currency trading in our New to Forex information.

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