Doji Patterns

Introduction

The doji is one of the most famous candlestick patterns. It is simple to spot and often appears near important turning points. In this lesson, you will learn what a doji means, the four main types and how to trade them safely.

What is a Doji?

A doji is a candle where the open and close prices are almost the same. The body is very thin, like a cross or plus sign. It shows indecision: buyers and sellers fought during the day, but neither side won.

After a strong move up or down, a doji is a warning that the current trend may be losing strength.

The 4 Types of Doji

1. Common Doji

Small upper and lower shadows with almost no body. It shows balance and a quiet market. On its own, it is a weak signal.

2. Long-Legged Doji

Long upper and long lower shadows with a tiny body in the middle. The price moved a lot in both directions but closed where it opened. High confusion. Often seen near tops and bottoms.

3. Gravestone Doji

A long upper shadow with no lower shadow. Open and close are at the low of the day. Buyers pushed the price up, but sellers dragged it all the way back down. After an uptrend near resistance, it is a bearish reversal signal.

4. Dragonfly Doji

A long lower shadow with no upper shadow. Open and close are at the high of the day. Sellers pushed the price down, but buyers brought it all the way back. After a downtrend near support, it is a bullish reversal signal.

Example 1: Dragonfly Doji at Support

VWX Ltd falls for four days from Rs 540 to Rs 502. Support is Rs 500.

• Day 5: Open Rs 503, Low Rs 491, High Rs 504, Close Rs 503. A dragonfly doji.
• Sellers tried to break support but buyers defended it.
• Day 6: stock opens Rs 506 and closes green at Rs 512. Confirmation.
• Buy at Rs 512, stop-loss below the doji low at Rs 489, target Rs 538.

Example 2: Gravestone Doji at Resistance

ZAB Ltd rises for four days from Rs 210 to Rs 238. Resistance is Rs 240.

• Day 5: Open Rs 238, High Rs 247, Close Rs 238. A gravestone doji.
• Day 6: a red candle closes at Rs 232. Confirmation.
• If you were holding ZAB from lower levels, this is a good time to book profit.

Always Wait for Confirmation

A doji alone does not tell the direction. Wait for the next candle:

• Green candle after a dragonfly doji at support = bullish confirmation.
• Red candle after a gravestone doji at resistance = bearish confirmation.

Where Doji Signals Fail

• In the middle of a range, a doji means very little.
• In very strong trends, a doji may only cause a short pause, not a reversal.
• On low-volume days, doji candles are less reliable.

Doji Trading Checklist

• Has the stock moved in one direction for 3 or more days?
• Is the doji at support or resistance?
• Did the next candle confirm?
• Is the stop-loss beyond the doji's high or low?

On GoPocket

Every evening, scan the charts of the stocks in your GoPocket watchlist for doji candles near support or resistance. Move those stocks to a separate watchlist called "Next Day Trades" and check for confirmation the following day.

Frequently Asked Questions

Is a doji bullish or bearish?

It depends on where it appears. A dragonfly at support is bullish; a gravestone at resistance is bearish.

How exact must the open and close be?

They do not need to be identical. A very small body compared to the full range is enough.

Key Takeaways

• A doji shows indecision.
• Location matters more than shape.
• Always wait for a confirmation candle.

Disclaimer: Hypothetical examples for learning only. Not investment advice.