The Doji Candlestick: Market Indecision and Reversals

A Doji candle occurs when the market's Open and Close prices are virtually identical. Visually, it looks like a cross or a plus sign. In terms of market psychology, it represents a state of total indecision—a temporary equilibrium where neither buyers nor sellers can gain the upper hand.

When you see a Doji after a long trend, it's a major warning sign. It shows that the dominant force (bulls or bears) is losing its conviction and the 'big money' is likely taking profits before a reversal or a period of deep consolidation.

The Dragonfly Doji has a long lower wick and no upper wick, with the Open, High, and Close all at the top of the candle. It's an extreme version of a Hammer.

This is a powerful Bullish reversal signal. It shows that sellers aggressively drove the price down durante the period, but by the close, buyers had completely absorbed the selling pressure and pushed the price back to the open. When found at support, it's a high-probability buy signal.

The Gravestone Doji is the opposite of the Dragonfly. It has a long upper wick and no lower wick, with the Open, Low, and Close all at the bottom. It represents a massive failed breakout.

Buyers tried to push the market higher, but they were met with overwhelming supply. The 'gravestone' symbolizes the end of the uptrend. This candle at a major resistance level is one of the most reliable sell signals in price action trading.

A Doji in a 'choppy' sideways market is just noise. To trade Dojis successfully, you must filter them by location. Look for them at Daily Support/Resistance, Monthly Pivot Points, or the 50/200-period Moving Averages.

The best way to trade a Doji is to wait for the next candle to close. If a Doji forms at resistance and the following candle closes lower, you have 'confirmation' of the reversal. Enter on the break of the Doji's low and place your stop just above the high.