Definition of Doji, Types and How to Read
The Doji candle is one of the candles that traders are quite familiar with. The reason is, this candle often provides information to traders about a trend reversal. Therefore, it is very important to learn more about what a Doji candle is.
In this article, we will review information about the meaning, types, how to use it, and how to read Doji candles. Let's see the article.
What Are Doji Candles?
Doji is the name of one type of candlestick that is often used by traders to find out information about a trend reversal.
Doji is a candlestick that is formed when the opening and closing prices are almost the same for a certain period of time.
Generally, this pattern indicates a reversal of a trend in the market. In Japanese, "Doji" means a blunder or error, which refers to the scarcity of the opening and closing prices that have something in common.
Types of Doji Candles
This candlestick comes with three main types, namely, long legged Doji, dragonfly Doji, and gravestone Doji.
Below is an explanation of the three types of Doji candles:
· Long Legged Doji
A long legged Doji is a candlestick consisting of a long upper and lower shadow. This pattern has more or less the same opening and closing.
This type of Doji will indicate indecision that occurs after a strong increase or decrease in the market. This pattern also does not always mark the end of a trend, but can also mark the beginning of a period of consolidation.
A long legged Doji is a candle that is considered the most significant when an up or down trend is strengthening. For example, when the trend is on the rise, the price of an asset will be pushed higher and the close for most of the period will be above the open.
· Dragonfly Doji
The Dragonfly Doji is a type of candlestick that can signal a potential price reversal to the downside or bag. This pattern is formed at the highest opening and closing prices at the same time of day. Meanwhile, the lowest price is in a position quite far from the opening price.
This type of doji is often formed when the market is bearish, but the emergence of a bull power that finally forces the price to close at the same position as the open.
· Gravestone Doji
The Gravestone Doji is a bearish reversal candlestick pattern that forms when the open, low, and close prices are close to each other with a long upper shadow pattern.
The long upper shadow pattern indicates that the bullish gains earlier in the session have been offset by the late-session declines, which often occur just before a long-term bearish downtrend.
How to Read Doji Candle Pattern
In order to be clearer in understanding the Doji candle pattern, here is how to read some information that you will often encounter in candlestick patterns.
· Highest Price (Highest Price)
When an asset price goes high it will form a tail top that occurs above the body, this is known as a tail top.
If the opening of the highest price occurs in the time frame, then later there will be no tail above.
· Open Price (Open Price)
The open will represent the first price traded in a given timeframe, this is indicated by the upper or lower part of the body.
If the price is trending up, the candlestick will be green. On the other hand, if the price is trending down, the candlestick will be red
· Lowest Price (Lowest Price)
The lowest price traded within a certain period of time, will be shown at the bottom of the tail that occurs below the body, this is called the lower tail.
If the open price is the lowest price, then later there will be no lower tail.
· Latest Price (Close)
The latest price is the last or most recent price traded in a certain period of time.
When you're reading candlestick patterns like the Doji, you'll find patterns that appear on a chart. This pattern is formed when there is a meeting between buyers and sellers, where the current price will show the most recent condition if we compare it with the open price. It then forms a body of the candlestick.
If the price is low or high, a shadow will form on the candlestick. The length of this shadow will determine how strong one of the buyers and sellers is trying to push the price.
So, if the lower shadow is long, it means that the seller is trying to drop the price. Meanwhile, if the upper shadow is long, then the buyers are trying to increase the price.
From there, you can find out how strong one side is against the other.
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