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Advanced trading Guide: Doji Candlestick Analysis

Doji Candlestick Analysis pattern is among the misunderstood candlestick patterns. There are four types of Doji candlesticks. Each has a different meaning and most advanced traders can figure them out. Most books written will teach Doji as a representation of indecision in the markets.

Looking at the length of Doji, you’ll be able to speculate the future market movement. In this post, you’ll learn how to read and analyze Doji candlestick pattern.

What is Doji?


Doji candlestick appears on the trading chart when the market opens and closes at the same price level. It simply means that the market is uncertain if the buyer or sellers are in control.

But there is a variety of Doji with various meanings on each. For now, let us know what usual Doji looks like:

Doji Candlestick Sample - FinanceBrokerage

Doji is a simple candlestick pattern. But it differs when taken into context. It provides the traders the sense of how the market will move. For instance, when spotting a Doji in an uptrend. This simply means that the market is in equilibrium (temporarily). Upon enough rest, the market will move higher on the path with least resistance. Observe the sample graphic below:

Sample Doji candlestick in an Uptrend - FinanceBrokerage 

Avoid this usual mistake:

Majority of traders spot Doji Candlestick Analysis in an uptrend and decide to go reverse. That’s a really bad idea. Looking at the market, if a trend is going upward and been moving higher, why would it lose against a single pattern like Doji?

Different types of Doji candlesticks


  • Dragonfly Doji

In fact Dragonfly Doji rarely occurs in which the price closes on the exact position it opened. Preferably, there is variation in having a small body with a long wick in the bottom. The meaning will be the same. The important point is being familiar with what it means.

Dragonfly Doji usually appears if the opening and closing prices are at the same level with a long lower wick. Below is a sample of a bullish Doji:

Dragonfly Doji Sample - FinanceBrokerage

That shows that whenever the market opens, the sellers are going in and pushing the price lower. But it won’t take a long time before buyers take control of the market, pushing the price higher.

How to trade with Dragonfly Doji?

Support marks an area where possible buying may come in. Go long whenever the price comes to support area and creates a Dragonfly Doji. The exact scenario tells you that it rejected lower prices with a high possibility to reverse higher. Observe the sample chart below:

Dragonfly Doji in a range market Chart Sample - FinanceBrokerage

When it comes to trending market, the market would likely bounce off the moving average. But you may go long whenever the price pulls back toward a moving average forming a Dragonfly Doji. Observe the sample chart below.

Dragonfly Doji in a trending market Chart Sample - FinanceBrokerage

  • Gravestone Doji

Gravestone Doji appears whenever the open and close are in the same amount, but with a long upper wick. Below is an example of a Gravestone Doji:

Gravestone Sample - FinanceBrokerage

This type of Doji shows that when the market opens, buyers come and push the price higher. But it won’t take long until sellers gain control and push the price lower. The market finally closes with the same price it opened. This is a sign of weakness because sellers are in control.

How to trade with Gravestone Doji? 

Resistance area marks the part where possible selling pressure could come. Go short when the price gets close to resistance forming a Gravestone Doji. The scenario simply shows that the market rejected higher price and could reverse lower. Observe the sample chart below.

Gravestone in Range Market Sample - FinanceBrokerageWhen it comes to a trending market, Gravestone Doji could make the market bounce off moving average. Go short whenever the price pulls back towards moving average forming a Gravestone Doji. Observe the sample chart below.

Gravestone in a Trending Market Chart Sample - FinanceBrokerage

  • Long Legged Doji

Long Legged Doji appears whenever the open and close are in the same price, but with a long upper wick and lower wick. Below is an example of a Long Legged Doji.

Long Legged Doji Sample - FinanceBrokerage

This Doji pattern shows that the market is uncertain upon a huge expansion in volatility. This pattern rarely occurs but if it appears, expect volatility to die out for some time before it picks up again.

There are two ways to trade in a Long Legged Doji. Let’s elaborate each.

  1. After huge expansion in volatility, the market will need to take a break before it continues. For a while, the market will be in the range to gain orders before breaking out. That means you can go long on the lows of the Long-Legged Doji. Observe the sample chart below.

A Long-Legged Doji Sample on Chart - FinanceBrokerage

Long Legged Doji Short the Highs on the First Test Sample Chart - FinanceBrokerage

  1. Based on the first sample above, whenever the price tests the high/lows a lot of times, it will likely break out. Look at the sample chart below.

Long Legged Doji Went Into a Range - FinanceBrokerage


Breakout After buildup at resistance - FinanceBrokerage

That ends our educational post for today. If you want to learn more visit our education archive page and read for FREE! Subscribe now and receive FREE updates on our latest posts!

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