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Trading the Doji
by Steve Crooks

August 19, 2005

The Doji is one of the most important candle signals of all and the only one that looks the same on both Candlestick and Bar charts.

There are many versions of the Doji, but all of them rely on the fact that the open and close are virtually equal. What happens in between decides the type of Doji and has a bearing on the strength of the signal. The length of the shadows will indicate the degree of activity. If the tails are long it indicates volatility; if the tails are short it indicates consolidation.

If the Doji has a large movement both above and below the body it is called a “Long-Legged Doji”; movement only above the body is called a “Gravestone Doji” and indicates the bulls have put up a good fight but the bears have pushed the price back down to its open; movement only below the body is called a “Dragonfly Doji” and indicates the opposite of the "Gravestone Doji". Each one has it’s own particular meaning and is stronger when it appears in certain positions.

The Doji appears in a number of other Candlestick Patterns including the "Star" patterns. It is a very powerful indicator especially when used in conjunction with selected western indicators.

The Doji indicates indecision on the part of both buyers and sellers and in most cases heralds a trend reversal. When you see a Doji on an uptrend, do not ignore it, particularly when it gaps up from the last close. Check your indicators and look for an overbought signal. The chances of a reversal are very high.

If the Doji appears during a downtrend, the indicators need to be showing an oversold position. A bullish confirmation signal will be required before making any commitment to a trade in this case.

I know of traders who base their trading decisions almost exclusively on the Doji signal. But in my opinion that is a very dangerous thing to do.

This article does not represent an in depth study of this pattern, so I would suggest further study before using it in your trading.

Steve Crooks is the webmaster of CTWorkshops and of
The Candlestick Trading Workshops. He is also the author
of two books on Japanese Candlesticks and Online Digital
Options. Steve runs various workshops on the subject of
Trading including 1-2-1 sessions and group workshops of
15 persons or less. He is also an active Trader himself.

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