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    Doji Candlestick: Types and How to Trade with Perfect Entry, Target and Stoploss in 2024

    Doji Candlestick

    By Admin

    Posted on August 31, 2024

    A Doji is a type of candlestick pattern that is known for its appearance of having almost no body. It is very important for trading and can be used to make effective trades in forex, crypto, and stocks.

    What is Doji?

    A Doji is a candlestick where the open and close prices are the same or very close to each other after forming a significant high and low. Traders use this candlestick as a signal for trend reversal because it is mostly known for indicating a trend reversal, especially after a hammer. You can understand how a Doji looks by seeing it in this image, which will help you easily identify this candle on a trading chart.

    This is a completely technical analysis-based candlestick that helps you identify the market’s next move. It also helps in understanding market sentiment, momentum, volatility, and the zones of buyers and sellers.

    Types of Doji?

    There are 5 types of Doji candles, which you will now learn about in detail so that you can understand them well and trade effectively using them. The 4 types of Doji candles are Standard Doji, Long-Legged Doji, Dragonfly Doji, and Gravestone Doji, which will now be discussed in detail.

    1. Standard Doji

    You mostly see this candlestick near support or resistance levels on the chart, and its appearance is unique, so you can easily recognize it. Its opening and closing happen at the same price, and the high and low extend equally on both sides. It looks like a neutral candlestick.

    standard doji

    Formation

    The formation of a Standard Doji is such that the price initially moves either upward or downward. If the price moves upward first, it then drops back down to the opening price, and it goes down by the same amount it went up. For example, if the price goes up 2 points after opening, it will then drop back down 2 points from the opening price and close at the opening price.

    2. Long-Legged Doji

    The Long-Legged Doji looks like a cross sign. You’ll notice a long shadow, which you can refer to as the tail, and a smaller shadow, which you can call the nose. There are also two types in this: one has a body, and one doesn’t, but the psychology remains the same in the formation. You can better understand this by looking at the image.

    long legged doji

    Formation

    The formation of a Long-Legged Doji is as follows: the price initially follows a downtrend and drops by a certain amount after opening. Then, it reverses and rises above the opening price. Afterward, sellers push the price back down, causing it to close at the opening price. This is how a Long-Legged Doji is formed in a buying scenario.

    3. Long-Headed Doji

    A long-headed doji is just the opposite of the last one. In this, traders always plan a selling trade. This candlestick can be seen at resistance and is a trend reversal candle. So, if it forms, pro traders expect a trend reversal and make a profitable trade. There are also two types in this: one has a body, and one doesn’t, but the psychology remains the same in the formation.

    long headed doji candlstick

    Formation

    For selling, the process is similar but reversed: the price initially moves upward after opening. Then, selling pressure causes the price to drop below the opening price. After that, buyers become active again and push the price back up, but it closes at the opening price. This forms a Long-Headed Doji candlestick in a selling scenario.

    4. Dragonfly Doji

    In the Dragonfly Doji candlestick, you’ll only see a tail, and there is no nose. The candle has a shadow on only one side, and the open and close happen at the same spot. This is a very rare candlestick and is considered a strong trend reversal signal. You might find this near a support level or following a trend line, and it can provide a good trading opportunity.

    dragonfly doji candlestick

    Formation

    In a buying scenario, you will see the presence of buyers, so the price initially shows selling pressure after opening. Then, buyers dominate and push the price back up to the opening price, where the candle closes. This results in the formation of a Dragonfly Doji. You might see this candlestick near a support level or following a trend line.

    5. Gravestone Doji

    This candlestick is the opposite of the Dragonfly Doji and is considered very strongly for selling. It is also very rare. In this candlestick, you will see a shadow on only one side, just the opposite of the Dragonfly Doji, and the open and close are at the same price.

    gravestone doji

    Formation

    Its formation is also rare. You will generally see it near resistance levels, where it works effectively. The formation occurs as follows: after the candle opens, the price rises significantly. Then, sellers become active, causing the price to drop and close back at the opening price. This results in the formation of a Gravestone Doji.

     

    What does Doji indicate?

    What does a Doji indicate whenever it forms in the market during trading? A Doji typically signals a trend reversal in most cases. Technical analysts mostly look for Doji formations at support and resistance levels. The higher the timeframe on which a Doji forms, the stronger it is considered. Additionally, it is viewed as a confirmation signal during price breakouts by technical analysts.

    doji reverse trend in btcusd pair

    How to use Doji Candlestick in trading?

    Now, everyone trades Doji in their own style, and I also trade according to my own method because I have learnt to develop my own strategy. If you want to develop your own trading strategy, you can read my article on the subject. So, if you also want to learn how to trade Doji, you can follow these steps and potentially find a good trade.

    doji candlestick entry and stoploss

    Step 1: Find a Buying or Selling Zone

    I don’t just jump into any trade. I first look for a zone for buying or selling. This helps me be clear about what to do next—whether to take a buying or selling trade.

    So, the buying or selling zone you look for should be identified on higher timeframes. For example, in my case, I look for it on the 4-hour chart. You should use the timeframe that works best for you.

    Step 2: Shift to Smaller Time Frames

    Once you have identified the buying or selling zone, reduce the timeframes. In my case, I shift from the 4-hour chart to the 1-hour chart to filter the zone and find a better entry point. After that, I look at smaller timeframes, like 30 minutes, 15 minutes, and finally 5 minutes to 1 minute, to find a Doji and make the entry.

    Step 3: Use Some Technology

    By technology, I mean using indicators because they work and are helpful. You can use indicators like RSI, MACD, Bollinger Bands, or any other indicator that you understand, to ensure more certainty in your trades. This helps maintain trading psychology and prevents you from exiting trades prematurely.

    Conclusion

    This was about the Doji, which is a candlestick where the open and close prices are the same after a significant movement. There are 4 types of Doji candles covered in this article: Standard Doji, Long-Legged Doji, and the two important ones, Dragonfly Doji and Gravestone Doji.

    In this, I have also explained how to use the Doji in trading. Additionally, by reading my other articles, you can learn how to develop your own strategy.

    So, that’s all for today. If you liked the post, you can leave a good feedback. Additionally, you can consider enrolling in our institute, Street Investment.

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