The doji candlestick pattern is one of the most common candlestick patterns you will see on your price chart.

It represents a trading session that opened and closed at the same price level, suggesting an equilibrium in the buying and selling pressure at the session’s close.

While the most popular doji pattern (regular doji) indicates indecision in the market, there are different types of doji, each telling a different story about the market.

It is, therefore necessary that you know the various patterns and what they mean.

In this piece, we will explain all of that and also discuss how to trade some of the patterns.


Anatomy of doji candlestick patterns

and what they mean


Anatomy-doji

A doji candlestick pattern is a candlestick with the same opening and closing price.

So, it doesn’t have a body, which represents the difference between open and close price but may have one or both wicks.

The wick is the part between the open/close price and the high/low price.

There are five recognized types of doji candlestick pattern, namely :

  • Regular doji
  • Dragonfly doji
  • Gravestone doji
  • Long-legged doji
  • Four-price doji

  • Regular doji

    regular-dojo

    Also known as the neutral doji or doji star, this candlestick has relatively small upper and lower wicks, which are about the same size.

    The open and close price is the same, so it has no real body.

    It shows that there was an upward and downward price movement during the trading session, but the price later closed where it opened.

    The regular doji is a very common candlestick pattern and signifies a market that is temporarily in equilibrium —neither the bulls nor the bears are in control.

    It occurs very commonly in price charts and can be seen in any price swing.

    The pattern offers no particular tradable indication, but when you consider it with other candlesticks around, you may find a tradable 2- or 3-candlestick pattern, especially when occurring after a pullback (in a trend) or at the boundaries of a ranging market.


    Dragonfly doji


    dragonfly-dojo

    The dragonfly doji has a long lower wick, no real body, and little or no upper wick.

    In other words, the session’s open, high, and close prices are at the same level.

    At some point during the trading session, there was a bearish pressure, and the price traded lower.

    However, the bulls later neutralized that pressure and pushed the price to close where it opened.

    The significance of the pattern depends on where it occurs. If it forms after a price swing down, it will basically act as a bullish pin bar reversal pattern and can be traded accordingly, but if it’s hanging in an upswing, it doesn’t have much significance.


    Gravestone doji


    gravestone-dojo

    The gravestone doji has a long upper wick, little or no lower wick, and no real body — which implies that the session’s open, close, and low prices are at the same level.

    But, at some point in the trading session, the price traded up, even though the bears brought it down later to close at the opening price.

    Depending on where the pattern occurs, it could have a bearish significance.

    When the gravestone doji forms at the end of a price rally, it could act as a bearish pin bar reversal pattern, but when it occurs after a downswing, it doesn’t mean much.


    Long-legged doji


    long-legged

    The long-legged doji is like the regular doji but has very long upper and lower wicks.

    So, it has no real body, as the opened and closed at the same level. The price traded quite high and low during the trading session but closed unchanged.

    This pattern is rare and occurs mostly when there’s unusually high volatility in the market — for example, following a high-impact news release.

    It shows a chaotic trading activity, with both the bulls and bears dominating at some point, but there was no clear winner at the end of the trading session.


    Four-price doji


    four-price-doji

    The four-price doji has no real body and no upper or lower wick, since the open, high, low, and close are all at the same level.

    It is represented by a horizontal line. It means that there was no price movement all through the trading session — complete indecision.

    This pattern is very rare and occurs only in markets with very low volatility. I doubt if you will ever find it in any major forex pair, but you may see it in the stock charts.


    Doji-derived candlesticks patterns


    In addition to the single doji candlestick patterns, there are multi-candlestick patterns that contain doji.

    In other words, the doji candlestick, together with one or more candlestick around it, forms a recognizable pattern that can be traded.

    Examples of such doji-containing candlestick patterns are the harami cross, morning doji star, and evening doji star.


    Harami cross

    harami-cross

    The harami cross is a 2-candlestick pattern in which the first candlestick completely consumes the range of the doji that forms the second candlestick.

    It is a form of the inside bar pattern. The first candlestick can be of any color.

    The pattern signifies a tight consolidation after a price move, and depending on where it forms, it could lead to a change in the price direction or a continuation in the present direction.

    If it’s occurring at a support level during a pullback in an uptrend, it can have a bullish reversal implication.

    On the other hand, if it forms at a resistance level during a rally in a downtrend, it can have a bearish reversal effect.


    Morning doji star


    morning-star

    The morning doji star is a 3-candlestick pattern in which the first candlestick is tall and bearish, the second one is a doji, and the third one is tall and bullish.

    It can have a bullish reversal effect if it forms at the end of a pullback in an uptrend. 


    Evening doji star


    Doji-evening

    The evening doji star is formed by three candlesticks: the first candlestick is tall and bullish; the second one is a doji; while the third one is tall and bearish.

    It can have a bearish reversal effect, especially if it forms at the end of a price rally in a downtrend.


    How to trade doji candlestick patterns  dragonfly doji

    As you can infer from the discussion so far, some of the doji candlesticks — dragonfly doji and gravestone doji — can form a tradable setup on their own, while the regular doji needs to be traded as a part of a multi-candlestick pattern.

    Sometimes, dragonfly and gravestone doji also form part of a multi-candlestick setup. 

    The high-legged doji highlights unique resistance and support levels that offer a breakout opportunity.

    So, in this discussion, we will be focusing on the dragonfly doji, gravestone doji, high-legged doji, and doji-derived patterns. We won’t be considering the four-price doji because it’s rarely seen on a chart.

    For the dragonfly doji, there are many ways to develop a trading strategy with it, but the most reliable setups with this candlestick pattern are the ones that occur in the direction of the trend.

    As a bullish reversal pattern, the dragonfly doji is best traded in an up-trending market.

    Another good place to look for a dragonfly setup is at the lower boundary of a ranging market.


    Trading dragonfly doji in an uptrend

     

    An up-trending market is one that is making higher swing highs and higher swing lows.

    The swing highs are from impulse waves, while the swing lows are from corrective waves or pullbacks.

     Impulse waves move in the direction of the trend and are larger and stronger than the pullbacks. 

    When trading the dragonfly setup in an uptrend, you should look for setups that occur during a pullback so that you can ride up the next impulse wave.

    In this situation, the setup can signal the end of the pullback and the beginning of a new impulse wave.

     It is never advisable to trade the pattern against the trend in a downtrend. That would be going countertrend, and such setups have a high failure rate.

    Even when trading the pattern in an uptrend, you will need to look for other factors that align with your setup to increase the chances of a good outcome.

    There are many tools that can form a confluence with your setup and improve the odds of the outcome. These are some of them: 

  • Support levels
  • Fibonacci retracement levels
  • Moving averages
  • Trend lines

  • Support levels


    In an uptrend, the impulse waves, which should be your target, begin from support levels and end at resistance levels, while pullbacks occur the other way round — they tend to end at support levels.

    So, a dragonfly setup that occurs at a support level after a pullback has a higher odds of success than one that occurs anywhere else. 

    The reason is this: the huge number of buy orders at a support level can prevent the pullback from going any lower and turn the price back up.

    It’s important you know that when the price climbs above a resistance level, that level becomes a support level.

    Those are the areas you should look for a dragonfly setup in an uptrend.

    In the GBP USD chart below, you can see that the market is trending up. 

    The price climbed above a resistance level (the tick brown line), which later became a support level.

    When the price pulled back to that level, a dragonfly candlestick formed, and the price subsequently turned back upwards.

    Doji-support-and-resistance

    Fibonacci retracement levels


    The Fibonacci retracement levels show the percentage of the preceding impulse wave that the pullback may get to before the price turns back upwards.

    Derived from the ratios of the Fibonacci sequence, the retracement levels indicate, in advance, the price levels that can potentially act as a support level. 

    Here is how to use it: When the price is in a pullback, you attach the Fibonacci retracement tool to your chart, from the low to the high of the preceding impulse wave.

    Then, watch out for a dragonfly doji setup when the pullback reaches the 38.2%, 50%, and 61.8% levels, which are the most significant levels.

    A dragonfly doji that occurs at these levels is likely to turn the price upwards.

    Look at the EURUSD chart again below. The dragonfly doji occurred around the 38.2% level, which was also a known support level.

    Notice that the trend line also crosses that area. The setup occurred at a confluence of many factors.

    fibonnacci-restracemnt-with-doji

    Moving averages

     

    The moving average indicator is very useful in a trending market.

    They can help you identify the trend direction and can act as a dynamic support level in an uptrend.

    There are different types of moving average, you can use — simple, exponential, or linear-weighted — but we prefer an 8-period or 21-period simple moving average at the session close. 

    If you wish to use the moving average indicator to trade the dragonfly doji in an uptrend, wait for the pattern to occur when the price has crossed above the indicator line after a pullback.

    In the palladium chart below, the dragonfly doji occurred on top of the indicator after a pullback, and the price started climbing up again.

    Doji-with-moving-average

    Trend lines


    Trend lines help you to see the direction and steepness of the trend and can also serve as rising support levels where the price can get and bounce up.

    When trading the dragonfly doji pattern in an uptrend, apply your trend line across the rising swing lows and look for the pattern whenever the price pulls back to the line.

    In this GBP CHF chart, which you’ve seen before, the dragonfly doji formed at the junction of the trend line and the support level. All the supporting factors aligned together.

    Dragonfly-with-doji

    Trading dragonfly doji in ranging markets

     

    The dragonfly doji setup can work well in a ranging market — a market that is moving sideways with relatively clear upper and lower boundaries.

    Being a bullish reversal signal, the dragonfly setup is only useful at the lower boundary.


    Support zones


    The lower boundary of a ranging market acts as a support zone. There are many buy orders at this level, which can force the price to turn back upwards.

    A dragonfly doji pattern forming around this level may be an indication that the price is about to head upwards.

    The AUD JPY chart below shows a market in a range. Notice the two dragonfly doji patterns that occurred at the lower boundary and how the market rose to the opposite boundary on both occasions.

    Dragonfly in ranging markets

    Oscillators


    Oscillators, such as the momentum indicator, stochastic, RSI, CCI, OsMA, MACD, and William %R, can help you confirm the bullish signal from a dragonfly doji pattern. The trade signal can be any of these: 

    • A divergence between the oscillator indicator and the price swing high or low 
    • The indicator coming out from the overbought region (a sell signal) or the oversold region (a buy signal)
    • The indicator bars (MACD, OsMA) rising from below the midline (buy signal) or descending from above the midline (sell signal)

    In the AUD JPY chart, when the stochastic was added, it showed a divergence signal on both occasions and an oversold signal on the second setup.

    oscillator-with-doji

    How to trade the gravestone doji


    The best strategy to trade the gravestone doji pattern is to trade with the trend or in a ranging market.

    Since the pattern has a bearish reversal implication, a downtrend or the downswing of a ranging market is your best bet.


    Trading gravestone doji in a downtrend

     

    The price is said to be in a downtrend if it’s making lower swing lows and lower swing highs.

    In this case, the downswings, which move in the direction of the trend, are called impulse waves, while the upswings (rallies) are called corrective waves or pullbacks.

    Impulse waves are larger and stronger than the pullbacks. 

    If you wish to trade the gravestone doji setup in a downtrend, look for setups that occur after a price rally so that you can ride down the next impulse wave.

    Such setups can signal when the pullback move has lost momentum, and the price is about to resume its downward journey. 

    One thing you must avoid with the gravestone doji pattern is trading it against an uptrend, thinking that it can cause the uptrend to reverse. That would be calling for a disaster.

    Even when trading the pattern in a downtrend, you will need to look for other factors to align with your setup so as to increase the chances of a good result.

    These are some of the tools that can form a confluence with your setup and improve the odds of the outcome: 


    Resistance levels


    When the market is trending down, the impulse waves move downwards and end at support levels, while pullbacks move upwards and tend to reverse at resistance levels.

     There are usually huge sell orders at resistance levels, which tend to force the price down — the reason pullbacks tend to reverse there.

    Bear in mind that when the price falls below a support level, that level becomes a resistance level.

    It, therefore, makes sense to look for the gravestone doji setup at the resistance levels in a down-trending market.

    If you pick a good setup that occurs after a pullback to a resistance level, you can potentially ride the next impulse wave down, and this increases the chances of a great outcome. 

    In the AUD JPY chart below, price broke below a support level, which later became a resistance level.

    The price pulled back up to that level on three occasions. On the third pullback to that level, a gravestone doji pattern occurred, and the price fell each time.

    gravestone-dojo-candlestick

    Trend lines


    A trend line can help you appreciate the direction and steepness of a price trend, but it can also serve as a descending resistance level.

    If you’re trading the gravestone doji pattern in a downtrend, apply your trend line across the declining swing lows. Watch out for the setup whenever the price rises to the trend line.

    In the GBP USD  chart below, the market is in a downtrend. There were two pullbacks to the trend line,and the gravestone doji pattern occurred at the end of the second one.Expectedly, the price dropped.

    gravestone-dojo-with-trendlines

    Fibonacci retracement levels


    The Fibonacci retracement levels, which shows the percentage of the preceding impulse wave that a price rally may get to before reversing, can help you predict the market levels that can act as resistance levels. 


    They are derived from the ratios of the Fibonacci sequence, and the most significant levels are 38.2%, 50%, and 61.8% levels. 


    When the price starts to rally, attach the Fibonacci retracement tool to your chart, from the high to the low of the preceding impulse wave and look for a gravestone doji pattern at the retracement levels.

    A setup that occurs at any of the important retracement levels may lead to a price reversal.

    In the palladium chart below, you can see that multiple gravestone doji patterns formed at a 61.8% retracement level.

    Notice that the trend line there also provided extra resistance — a confluence of many supporting factors.

    gravestone-dojo-with-trendlines

    Moving averages

     

    A moving average indicator can help you identify the downtrend and can also act as a dynamic resistance level.

    While there are different types of moving average, we like using an 8-period or 21-period simple moving average at the session close. 

    Attach your chosen moving average on the price chart and wait for the gravestone doji pattern to occur after a pullback to the indicator line, as you can see in the EURUSD chart below.

    The price decline paused for a while, and the attempted rally hit the indicator and formed a gravestone doji. Then, the price dropped again. 

    gravestone-dojo-with-moving-average

    Trading gravestone doji in ranging markets

     

    You can also trade the gravestone doji in a ranging market. As a bearish reversal signal, the gravestone pattern can only form a tradable setup at the upper boundary of the range. 


    Resistance zone


    The upper boundary of a ranging market acts as a resistance zone. With many sell orders around the upper boundary, that level can force the price to turn downwards. A gravestone doji at that level may indicate an imminent down move. 

    In the USDCHF chart below, the market has been in a range since March. Sometime in October, a gravestone doji pattern appeared at the upper boundary, and the price fell to the other end. 

    gravetsone-doji

    Oscillators


    Oscillators show when a price move is losing momentum, so they can help you confirm the gravestone doji signal. The signal from an oscillator indicator can be any of these: 

    • A divergence between the oscillator indicator and the price swing high or low 
    • The indicator (stochastic, relatives strength index  etc.) coming out from the overbought region (a sell signal) or the oversold region (a buy signal)
    • The indicator bars (MACD, OsMA) rising from below the midline (buy signal) or descending from above the midline (sell signal)

    In the USDCHF chart, when the stochastic was added, the gravestone doji setup coincided with an overbought signal in the indicator.

    gravestone-doji-with oscillators

    How to trade the high-legged doji


    The high-legged doji occurs mostly when there’s high volatility in the market, especially after the release of high-impact news.

    While the high-legged doji implies a chaotic trading activity, its high and low prices serve as temporary resistance and support levels in a lower timeframe.

    The price will definitely retest either of or both levels and eventually break out of the zone.

    Although some traders may try to fade the retest of the pattern’s high or low, the most reliable way to trade the high-legged doji is by using a breakout strategy.

    In the GBPUSD chart below, you can see a high-legged doji on the D1 timeframe.

    high logged doji

    When you step down to the H4 timeframe, you can mark the upper and lower boundaries and wait for the price to breakout. 

    High lagged doji

    In this case, it broke above the upper border. You can enter at the close of the breakout candlestick.

    Alternatively, you may place stop orders above the upper border and below the lower border before the breakout occurs.

    You can place your stop loss at the other end or in the middle of the range. Measure the size of the range and use it for your profit target. See the chart below.

    High Legged Doji

    How to trade doji-derived candlestick patterns


    There are three common multi-candlestick patterns that contain the doji — morning doji star, evening doji star, and the harami cross.

    All three patterns can form reversal setups. While traders can use them differently, here are the two reliable ways you can trade doji-containing candlestick patterns:

  • Trading the patterns with the trend
  • Trading the patterns in a ranging market

  • Trading doji-derived candlestick pattern with the trend 


    Any pattern you trade in the direction of the trend offers you a greater chance of a favorable outcome.

    That’s why veteran traders will always advise that you trade with the trend.

    In addition to trading with the trend, there are other tools that can help you find high probability setups. 

    Those tools include:

  • Support and resistance levels
  • Fibonacci retracement levels
  • Moving averages
  • Trend lines

  • Support or resistance levels


    When trading these reversal patterns, your aim should be to find the setup at the end of a pullback so that you can profit from the next impulse wave in the direction of the trend.

    So, in an uptrend, look for the morning doji star or bullish harami pattern when the price pulls back to a support level, while in a downtrend, look for the evening doji star or bearish harami pattern when the price rallies to a resistance level.

    In the AUD USD chart below, the price finally broke out of a resistance level and climbed up.

    It later pulled back to that level, which then became a support level, and formed a morning doji star pattern. The price subsequently surged upwards.

    Morning-star

    Trend lines


    With a trend line, you may be able to anticipate the levels where the price can reverse in a pullback.

    In an uptrend, attach your trend line across the lows of the rising swing lows and look for the morning doji star or bullish harami pattern when the price pulls back to the line. 

    For a downtrend, place your trend line across the falling swing highs and look for the evening doji star or bearish harami pattern when the price rallies to the line.

     The AUD USD chart below shows a declining market. Notice the evening doji star pattern that formed at the end of a pullback to the trend line and how the market started falling again afterward.

    evening-star

    Fibonacci retracement levels


    The Fibonacci retracement levels may indicate, in advance, where the price may retrace to before reversing to the trend direction.

    You attach the tool to the preceding impulse wave when a pullback starts — in an uptrend, you go from the wave’s low to its high, while in a downtrend, you move from high to low.

    The most important Fib retracement levels, where you look for the pattern, are the 38.2%, 50%, and 61.8% levels.

    In the USDCAD chart, when the Fibonacci retracement tool was attached, it showed that the evening doji star pattern occurred at 61.8% retracement levels.

    See the chart below. So, there was a confluence of two supporting factors where the setup formed.

    Doji-with-fibonnacci

    Moving averages 


    With the moving average indicator, you don’t just identify the trend direction — it also shows a potential dynamic support or resistance level.

    Here, we use a 21-period simple moving average at the session close, but you can use any type and period you prefer.

    Look for any of the patterns after a pullback to the moving average line. For an up-trending market, the moving average line lies below the price bars and tends to act as a support level.

    In a downward-trending market, the moving average line stays above the price bars and tends to act as a resistance level, as you can see in the USDCAD chart below. The price attempted to rally but formed a harami cross pattern on the moving average line, and the price dropped thereafter.

    harami-pattern

    Trading doji-derived candlestick pattern in ranging markets

     

    A ranging market can offer high probability setups with doji-derived candlestick patterns. You only need to know where to look for them and the tools that can help.

    Here are two tools you can use:

  • Support and resistance zones
  • Oscillators 

  • Support and resistance zones


    The first thing to do, when trading a ranging market, is to identify the upper and lower boundaries.

    The upper boundary serves as a resistance zone, while the lower boundary serves as the support zone.

    Look for the morning doji star or harami cross at the support zone. At the resistance zone, look for the evening doji star or the harami cross — the bullishness or bearishness of the harami cross pattern depends on where it occurs.

    In the USDCHF chart below, the market was in a range then a morning doji start pattern occurred ,and the price climbed up to the other end.

    Note that you could simply trade the dragonfly doji in the pattern, instead of waiting for the morning doji star. 

    morning star

    Oscillators


    Oscillators can help you confirm a candlestick setup in a ranging market. An oscillator’s signal can be as follows:

    • A rising indicator bars (MACD, OsMA) from below the midline (buy signal) or a descending from above the midline (sell signal)
    • The indicator (stochastic, RSI, CCI, Stoch-RSI, etc.) coming out from the overbought region (a sell signal) or the oversold region (a buy signal)
    • A divergence between the oscillator indicator and the price swing high or low 

    In the USDCHF chart, you can see that the morning doji star pattern coincided with    an overbought signal in the oscillator.

    morning star

    Trade entry and exit methods


    There are various ways you can enter and exit a trade. Some are simple, while some are difficult. Here is a simple guide for your trade entry and exit methods.


    Entry and exit in a trend


    Place your market order at the close of the candlestick that forms or completes the setup. 

    Alternatively, you can place a stop order a few pips above the setup if you are long or a few pips below the setup if you are short.

    For your stop loss, place it below the preceding swing low if you are long or above the preceding swing high if you are short.

    Placing the stop loss some pips below or above the current swing low/high (as the case may be) may be very risky, and your trade can get hit before the price moves. See the chart below.

    doji-trade-entry-method

    For your profit target, use any of these methods:

    • Fibonacci extension or expansion levels
    • The next support or resistance level
    • The average size of impulse waves in the trend, measured from the low/high of the pullback you’re trading
    • A risk/reward ratio of 2:1 or 3:1

    Entry and exit in a ranging market


    You can place a market order at the close of the candlestick that forms/completes the setup.

    Another option is to place a stop order a few pips above the pattern if you are going long or below the pattern if it is a short position.

    For your stop loss, place it a few pips below the lowest level in the support zone if it’s a long position. 


    If you are short, place your stop loss a few pips above the highest level in the resistance zone. 


    Keep your profit target a few pips before the opposite boundary. See the chart below


    ranging-market

    Final words


    There are different types of doji, and each one tells a different story about the price.

    While some of those doji candlestick patterns can form tradable setups on their own, any type of doji can be a part of multi-candlestick patterns that can have significant reversal effects at the right moments. 

    To trade these setups successfully, you need to understand how to read price action and also make use of other supporting tools, such as support and resistance levels, Fibonacci retracement levels, trend lines, moving averages, and oscillators (for ranging markets). In addition, don’t trade against the trend, and avoid using a tight stop loss.


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