Doji is a candlestick whose opening and closing prices are equal or almost equal. There should also be shadows on both sides of the candlestick, approximately the same size.
Doji means agreement between buyers and sellers, or the absence of players, or testing of the level. This formation can be both a reversal and lead to the continuation of the trend. We can say that Doji is the yellow color of the traffic light.
How to trade Doji?
The Doji candlestick pattern can be taken as a reversal signal only in one case. If the following conditions are met (simultaneously):
1. The Doji was preceded by a strong, clear, and clearly visible long-term trend.
2. Before the doji there was a full-bodied candle, medium or large in size (relative to the current chart) in the direction of the trend.
3. There is confirmation, i.e. after the doji a candle appeared that is opposite to the dominant trend.
Only if these three conditions are met, we can consider entering against the trend after the doji appears. In all other cases, the doji is simply ignored.
Stop-loss is placed behind the extreme point of the doji, take-profit is at the nearest support/resistance level. Since the doji pattern is not strong, we do not take large targets.
Important Points About Doji
- It is highly desirable to have a support/resistance level as a support, as for any Price Action setup;
- The maximum of the doji is the level, the breakthrough of which will mean that the trend is still in force;
- Don't lose sight of other timeframes;
- On small scales (less than H1) doji means NOTHING;
-We always wait for confirmation;
- If the market moves horizontally, simply ignore the doji;
- Only the FIRST doji is important;
- Short shadows are desirable for turning.
Conclusion
You can trade on Doji only if 3 conditions are met simultaneously: the presence of a clear trend, a full-bodied, rather large candle in the direction of the trend before the Doji, and a confirming candle against the trend after the Doji.
