DOJI
Definition
This candlestick is formed when the opening and closing prices are virtually equal.
Recognition Criteria
1. The length of the body is negligible or close to null.
Candlestick Requirements and Flexibility
Ideally, the body should be colorless and have zero length. However, candlesticks with close-to-zero body lengths, whether white or black, are also accepted as Doji.
Trader’s Behavior
A Doji is a distinct signal indicating indecision about the market direction, representing a tug-of-war between buyers and sellers. It shows that prices fluctuated above and below the opening price during the day, but then the session closed either exactly at or very near the opening price. The overall result is a standoff, indicating that neither the bulls nor the bears were able to gain control during the day. This suggests that a potential turning point could develop soon.
A Doji is an important candlestick. It provides information on its own and is also a key element in other patterns. It needs to be interpreted in the context of a preceding trend or preceding candlesticks. The appearance of a Doji after an advance or a long white candlestick signals that buying pressure is weakening. Its appearance after a decline or a long black candlestick signals that selling pressure is diminishing. Essentially, a Doji indicates that the forces of supply and demand are becoming more evenly matched, suggesting that a change in trend may be imminent. However, a Doji alone is insufficient to identify a reversal, and further confirmation from subsequent signals may be necessary.
The significance of a Doji as a signal is somewhat relative and depends on the characteristics of the market. It is particularly important in markets where Doji are not frequently observed. If a chart features many Doji, the appearance of a new Doji in that market is not very meaningful, and its signal holds negligible value.