The usual approach to forecasting trends and building a trading strategy is to examine candlestick patterns in the prices of assets traded on the stock market. When studied along with a variety of other data, there are a lot of different candlestick patterns that signal multiple possible market directions.
A Doji is a special pattern in a candlestick chart, which is a popular trading chart. It is distinguished by its short length, which indicates a limited trading range. The short length indicates that the opening and closing prices of the traded financial asset are equal or have little variances. A plus sign, a cross, or an inverted cross are all examples of Doji candlesticks.
Meaning of Doji
The name "Doji" comes from the Japanese word "Doji," which means "error." The pattern gets its name from the fact that it reveals that the asset's opening and closing prices are equal, which is a rare occurrence.
A Doji is a symbol indicating market hesitation and a hint for a market reversal in either an upward or downward trending market.
Understanding and identifying patterns on trading charts for currencies, stocks, futures, or bonds is an important aspect of technical analysis for traders. Traders need to comprehend different chart patterns and what they signify in addition to analyzing and identifying trends.
Types of Doji
The Dragonfly Doji, long-legged Doji, Gravestone Doji, star Doji, and hammer Doji are some of the types of Doji in stock market.
1) Gravestone Doji
The Dragonfly Doji is inverted upside down to make a gravestone Doji design. The opening, low, and close prices are virtually identical, but the high price is significantly higher. Buyers were strong early on - but by the close, they would have given up all their gains, and sellers had pulled the price all the way down to the open.
- Bearish Gravestone Doji
The most prevalent pattern is a bearish Gravestone Doji, which can appear near market tops. As the asset's price continues to fall, the price chart for Natural Gas below indicates a Gravestone Doji in a downtrend. A pullback to the upside is followed by a tombstone, which signifies the end of the higher pullback. After the Gravestone Doji, the price drops, confirming that the bears have regained control.
2) Long-Legged Doji
When the open and close prices are roughly the same, but there are extreme highs and lows during the time, causing lengthy tails, the result is a long-legged Doji. A long-legged Doji pattern suggests ambivalence because, despite significant moves both up and down over the period, neither the bulls nor the bears make any substantial advancement.
3) Star Doji
A bullish Doji star and a bearish Doji star are two types of star Doji candlestick patterns. Both arise following an uptrend or fall in an instrument's price and help to signal different trend orientations.
4) Bearish Doji Star
A bearish Doji Star appears after an uptrend and resembles a plus sign. If the price drops after the candle pattern, it confirms the bearish reversal of the Doji star. It's called a "star" because its body must be higher than the previous candle's.
5) Bullish Doji Star
After a downturn, a bullish star Doji, also known as a morning star Doji, appears as a plus sign. The pattern is confirmed if the price moves higher after the bullish start of Doji. It's called a "star" because its body must be lower than the previous candle's.
6) Hammer Doji
The hammer Doji candle is fashioned like a hammer and appears following a price fall. When the price opens, lowers, and then closes near the opening price, a hammer Doji candlestick is formed. The pattern indicates that buyers are rushing in at the bottom of the market.
7) Dragonfly Doji
When the open, high, and closing prices of a candle are the same or very near to the same, but the low is substantially lower than the other three prices, a dragonfly Doji candlestick pattern is formed. A genuine dragonfly Doji is quite rare. The majority of dealers allow for minor price differences.
Importance of Doji
According to technical experts, the price accurately reflects all available information about the stock, meaning that it is efficient. However - past price performance does not guarantee future price performance, and a stock's present price may have little to do with its true or intrinsic worth. As a result, technical analysts employ methods to sift through the noise and identify the greatest wagers.
The shape of a candlestick pattern is determined by four types of data. Analysts can draw conclusions about price behaviour based on this structure. Every candlestick has an open, a high, a low, and a close. It doesn't matter what period or tick interval you use. The candlestick pattern generates a filled or hollow bar as the body.
Lines that extend beyond the body are called shadows. A hollow candlestick is formed when a stock closes higher than it opened. If the stock closes lower, the candlestick's body will be filled. The Doji is one of the most important candlestick shapes.
