A doji is a candlestick pattern where the opening and closing prices of a security are nearly the same, creating a shape that looks like a cross or plus sign. It signifies market indecision, indicating a balance of power between buyers and sellers. While often seen as a potential trend reversal signal, especially after a strong trend, its exact meaning depends on the context and subsequent price action.
What it is
- A single candlestick pattern in technical analysis.
- Formed when an asset’s opening and closing prices are almost identical.
- Has a very small or nonexistent real body with upper and lower shadows (wicks) of varying lengths.
- Looks like a cross, plus sign, or star on a chart.
What it means
- Market indecision: It shows that neither buyers nor sellers had a clear advantage during the trading period.
- Potential reversal: When it appears after a significant uptrend or downtrend, it can signal that the current trend is losing momentum and a reversal may be coming.
- Trend continuation: In some cases, it can indicate a pause or consolidation phase before the trend continues.
How to interpret it
- Context is key: A doji’s significance depends heavily on its location in a trend. It is most watched for potential reversal after a prolonged price movement.
- Look for confirmation: Since a doji on its own is a neutral indicator, traders often look for confirmation from the next candlestick or other indicators to understand the next move.
- Variations: Different types of doji exist, such as the Long-Legged Doji and Dragonfly Doji, each with specific implications that traders analyze in more detail.
