Education post 13/100 – How to trade doji candlestick pattern?– A Doji is a small bodied Japanese candlestick pattern whose opening and closing are at the same or nearly the same price.
– A Doji is usually part of common Japanese candlestick reversal patterns like the bullish Morning Star and bearish Evening star patterns
– Because Dojis are found in a large number of reversal patterns, traders automatically think that the single doji is a reversal candlestick. But in fact, the doji by itself represents indecision in the marketplace.
– A Doji breakout setup provides an excellent risk to reward opportunity for forex traders.
The lowly doji is very unassuming in appearance. Typically, it looks like a plus sign but can appear as a capital “T” in the Dragonfly doji pattern or the shape of a nail in the Gravestone Doji. We are going to be discussing the first two types of dojis found in the “cheat sheet” above. These small candles can lead to large breakouts that either continue trends or reverses them. We are going to look at the way to trade these power packed price patterns with limited risk for maximum potential gain
Typical candlesticks consist of a body that may be one of two colors; blue or red. A candle is blue if buyers were able to push prices above the opening price and were able to hold it until the close of the candle. A candle is red or bearish is sellers were able to push prices below the opening price and hold it there until the close.
On the other hand, the doji candles have no color. The doji and long-legged doji illustrate the battle between buyers and sellers that ended in a tie. The opening price and closing price are in the same place as bulls were unable to close prices higher and bears were unable to close prices lower.
How to Trade the Doji Breakout
Ideally, you want to find a doji that has formed near a level of support like a trend line. You want to identify the doji high and the doji low as this will determine the support and resistance levels of a potential breakout.
