Doji: when nobody wins
- Recognise the four doji types
- Why a doji after a rally matters more than one in a range
- What confirms it
The shape
A doji opens and closes at (almost) the same price — the body is a thin line. Buyers and sellers fought for the whole period and ended level.
- Gravestone: long upper wick, open and close at the low. Buyers pushed up and lost everything they gained.
- Dragonfly: long lower wick, open and close at the high. Sellers were rejected completely.
- Long-legged: long wicks both ways — violent indecision.
Context decides
After a long rally, a doji says the buyers who were in control could not push the close higher — a warning. After a long decline, the same for sellers. In a quiet range dojis are everywhere and mean nothing. A doji is more important at the top of a rally than at the bottom of a decline, because rallies need constant new buying while declines can continue on their own weight.
Three dojis in a row at the end of a move (a rare tri-star) is a strong sign that the move has stalled.
Confirmation and failure
Confirmation: the next candle closes beyond the doji's body in the reversal direction — below it after a rally. Failure: price closes beyond the doji's high (after a rally) and the trend simply resumes. The doji's extreme is a natural place for a stop.
Check yourself
1. A gravestone doji forms after a long rally, at a prior high. What is the read?
- Buyers were rejected — a warning of a top ✓
- Strong continuation
- Nothing
2. What confirms a doji at the top of a rally?
- Any next candle
- The next candle closing below the doji ✓
- A doji the following day
Terms in this lesson
- Doji
- A candle whose open and close are (almost) equal: indecision.
- Dragonfly doji
- Doji with a long lower wick: sellers rejected.
- Gravestone doji
- Doji with a long upper wick: buyers rejected.