Doji Candlestick Formation and Significance
Doji candlestick is a pattern in Forex or Cryptocurrency when a commodity opens and closes at the same price range. It is a transitional candlestick and signifies the war between the bull and bears. The Doji candle is usually found at the top or the bottom of an up or downtrend and is considered reversal candlestick.
Doji candlestick is one of the significant visual patterns in technical analysis and forms because of the indecision between buyer and seller of stock or Cryptocurrency. It is a small candle, and this makes it easy to spot on the stock or Bitcoin chart.
The Doji candle opens at a higher high or lower low in the current market. It can also open at the same price where the previous candle closes. A Doji candlestick does not have a body and might also contain an upper or lower shadow. The horizontal line across the candlestick shows the open and close range of the price while the vertical line represents the trading range within a specific timeframe.
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Key Notes on Doji candlestick
- Doji candle is a period when the open and close price of the stock or Cryptocurrency is almost the same or with minor differences.
- Doji candlestick signals indecision between buyers and sellers and signals reversal if it exists at the top of a trend.
- The word Doji comes from the Japanese word “Doji” meaning blunder or mistake.
- The Doji candle doesn’t have a body and looks like a cross or star on the trading charts.
The Doji candle meaning: What it tells?
Doji candlestick represents a demand and supply equilibrium where neither the buyers nor the sellers are winning. If the formation is in an uptrend movement, the candle suggests that bulls are losing the war as many traders have exited the market during the previous bullish candles. The outcome of the upcoming price movement falls in doubt and bears slowly rush in to push the prices down.
Similarly, in the downtrend, the bears have been winning the price war in previous candles. The formation signals the exhaustion of bears to make lower lows. The bulls step in the game and push for a reversal pattern.
Doji candle looks like a cross or plus sign on stock or Bitcoin charts. It is a small candle with nonexistent bodies and shows that bulls and bears have an equal match. They are usually seen during periods of consolidation and are a great tool to identify upcoming potential breakout.
The Doji Candlestick formation in practice
Let us look at some Cryptocurrency charts and see how this formation signals a trend reversal or price consolidation. The image below depicts the price movement of Litecoin. We can spot multiple Doji formation on the charts and how it has contributed to the upcoming price action.
Doji candle is a neutral indicator and provides little information in isolation. However, its occurrence is essential to complete several visual patterns such as Morning star or Bullish Abandoned Baby. It is a common pattern throughout the stock or Cryptocurrency chart and isn’t always a reliable tool to spot price reversal. The formation of Doji candlestick might indicate an entry or exit point for stock or Cryptocurrency traders. However, using the candle in isolation might be risky, and many individuals use different oscillators to conceive a broader picture of a commodity and market sentiments.