What to Do with a Doji?
Good day. Beginner forex traders, when they come across the Doji candlestick pattern, get confused and start taking rash actions. They close and open positions, change the stop-loss, etc. Naturally, such fuss leads to losses.
So what should you do with a doji, what should you do when such a candle appears on the chart? All the answers are in this video lesson.
What Is a Doji?
A doji is a candle in which the opening and closing prices are equal, or almost equal. There should also be shadows on both sides of the candle, of approximately the same size.
A doji indicates agreement between buyers and sellers, or the absence of players, or a test of a level. This formation can be either a reversal one or lead to a continuation of the trend. You could say that a doji is the yellow light of a traffic signal.
How to Trade a Doji?
The Doji candlestick pattern can be taken as a reversal signal in only one case. If the following conditions are met (simultaneously):
- The doji was preceded by a strong, clear, well-visible prolonged trend.
- Before the doji there was a full-bodied candle of medium or large size (relative to the current chart) in the direction of the trend.
- There is confirmation, i.e. after the doji a candle appeared that is opposite to the dominant trend.
Only if these three conditions are present can we consider entering against the trend after a doji appears. In all other cases, the doji is simply ignored.
The stop-loss is placed beyond the extreme point of the doji, the take-profit at the nearest support / resistance level. Since the doji pattern is not a strong one, we do not aim for large targets.
Important Points
- It is highly desirable to have support in the form of a support / resistance level, as with any Price Action setup.
- The high of the doji is a level, the breakout of which will mean that the trend is still in force.
- Do not lose sight of other timeframes.
- On small scales (below H1), a doji means NOTHING.
- Always wait for confirmation.
- If the market is moving sideways, simply ignore the doji.
- Only the FIRST doji matters.
- For a reversal, short shadows are desirable.
Conclusion
The doji pattern mostly only creates confusion in trading. In 95% of cases it should simply be ignored. You can trade a doji only when 3 conditions are met simultaneously: a clear trend is present, there is a full-bodied candle of decent size in the direction of the trend before the doji, and a confirming candle against the trend after the doji.
Best regards, Pavel TradeLikeaPro.ru
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So what should you do with a doji, what should you do when such a candle appears on the chart? All the answers are in this video lesson.