The doji candlestick pattern represents a small trading range and is characterized by having a small body with an opening and close price that are virtually equal.
Doji Candlestick Analysis
The doji represents and indecisive market and is most significant during a trend. When a doji appears at the top of a trend it provides a signal that the market may be reversing to the downside. Conversely, when a doji appears at the bottom of a trend it provides a signal that the market may be reversing to the upside.
The doji candlestick pattern becomes increasingly relevant when the following occur:
- The doji is true to form with a small body and an equal open and close.
- It is preceded by a strong trend.
- Confirmation candles are used to confirm the reversal.
- Overbought and oversold indicators confirm a change in market direction.
Forex Trading Ideas
The doji may be traded alone, or with a combination of signals and/or indicators. For example:
- Step 1 – Wait for a doji to appear during an established trend.
- Step 2 - Confirm the trend reversal with at least one confirmation candle.
- Step 3 – Further confirm overbought or oversold conditions using the RSI – Relative Strength Index.
- Once conditions 1 – 3 are met place an entry order.
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