Doji candle in technical analysis is no longer a strange term for investors. However, when using the Japanese Doji candlestick chart for analysis, many investors are still confused and cannot apply it thoroughly. This candle is formed by the closing price and the opening price when they are equal. Now, let’s Forex Trading learn more about this candle in detail.
Analyze how the doji candle works in Forex
Understanding the basic information about candlesticks will help investors have a more general view. Besides, also apply better tools when doing technical analysis
What is the concept of a doji candle?
The Japanese Doji is a pattern that will appear when price movements have stopped and the market has not yet confirmed the trend. This Japanese candles signals a trend reversal. Doji is an important candle because its signals can help investors plan future trading strategies.
It forms at the top or bottom of the daily price trend. In this case, the possibility of a reversal or correction is high. However, each type of candle will have different characteristics. Investors need to distinguish each type of Doji and apply it.
Learn in detail how the doji candle was formed.
Candlestick chart Doji is a popular pattern in trading because it signals the formation of a top. Especially if the Doji appears after a long white candlestick, it represents an increase in price. When determining that the uptrend will continue in the future, the candlestick will warn investors that their buying ability is weakening. At this time, it is very likely that the market will reverse.
However, during a recession, Doji signals lose some of their strength. Because the formation of the candle then shows the balance between market dynamics. And the possibility of a decline is the same as in an uptrend, meaning the downtrend could continue.
Therefore, when the price trend bottoms, we need to identify a stronger signal to confirm the price reversal and the start of a new trend. Such a confirmation could be the Morning Star doji pattern consisting of three candles.
See more: Read candlestick charts: Basic & advanced material
Doji candlestick charts that investors often encounter
Doji is an important Japanese candlestick pattern and provides signals in the market. However, the importance of Doji depends on its type. The application and operation of each Doji type will depend on its characteristics, let’s find out now.
Analyze long-legged doji candle charts
Long-legged Doji, also known as Long-legged Doji, has a long shadow pointing up or down. This pattern has many specific meanings at the top of the trend. When a new period begins, prices will show signs of a sharp increase and then a decrease. At the end of the main period, the price returns to the starting point or touches close to that price level.
With this candlestick pattern, the candle body will be 5% shorter than the average of the last 20 candle bodies. Besides, the candle shadow accounts for 75% of the average height compared to the previous 20 candle bodies.
Tombstone doji candle chart analysis
True to its name, when this doji candle appears, it is also when the market is about to end and reverse. This is a bearish reversal candlestick pattern and they are formed by closing prices, opening prices, and low prices that are approximately the same.
This pattern is an important uptrend signal, warning of bearish activity at the level reached, so traders should prepare to exit their positions. But in this case it requires additional confirmation. If the upper shadow of the tombstone doji candle is longer, this is a stronger reversal signal.
Analyzing the dragonfly doji candle pattern
Dragonfly doji is T-shaped and looks like a dragonfly. Usually if a bullish candle appears during a downtrend. This is a sign of a market reversal. However, it cannot be denied that it can happen in an uptrend.
However if in an uptrend, it needs to be further confirmed by other patterns. Dragonfly Doji has a long lower shadow but a short upper shadow. Because of this, it is characterized by a tendency for prices to increase.
Instructions for using doji candles effectively when trading forex
Combining the use doji candle with indicators such as RSI, MACD, and Bollinger Bands will help investors increase the percentage of winning the market.
How to trade doji candle in the foreign exchange market
To be able to use candles well in the forex market. Investors need to determine the position of the candle and the market trend. Misdetermining the candlestick position or the main trend is wrong in the first step. And next, even if investors do things right, it is still difficult to come up with a suitable trading strategy.
Besides, investors can also combine it with other indicators. This is to determine whether the candlestick is signaling a trend reversal or trend continuation. Investors are encouraged to use indicators to determine trends and momentum. After waiting for the appearance of 1 to 3 candles, investors can place an order.
Combine the pattern doji candle with the support and resistance indicator
Support and resistance are areas where the price shows signs of reversing or slowing down before the old trend continues. At the resistance and support level, there will be a dispute between the buying and selling sides.
Taking advantage of this, investors can add Doji. This is intended to increase reliability when determining price trends. At the same time, you can also identify entry points more accurately. Pay special attention when the Japanese Doji candle appears in the support and resistance zone, and wait for the next candle to appear. If it turns in the opposite direction and is half the length of the previous candle, investors should place an order immediately.
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Use in combination doji candle with the RSI indicator
RSI is also known as a relative strength index. Investors when combining Doji with the RSI indicator need to pay attention if the price crosses the overbought zone. When the tombstone Doji appears, there is a high possibility that the price trend will reverse and decrease very sharply.
If the price crosses the oversold zone and a dragonfly Doji appears. This means that the price trend will reverse and increase sharply. When the price crosses the overbought or oversold zone regular Doji patterns appear. Wait for the next candle to predict the ongoing market trend.
Conclude
Above is the basic information that Forex Trading sends to readers about the doji candle model. Using the Japanese Doji candlestick pattern requires investors to clearly understand and distinguish the types of Japanese Doji candlesticks. Not only that, investors also need to continuously update their professional knowledge to be able to trade forex. Wishing investors success in the forex market soon
FAQs
Should doji candles be used alone for technical analysis?
Investors are encouraged to combine some other tools such as RSI or MA, and MACD indicators.
When investing in the foreign exchange market, do you need to learn economic news?
Understanding economic news is necessary. Sometimes prices in the market will be affected by economic news.
Is the Japanese Doji candlestick chart a bullish candlestick or a bearish candlestick?
The Japanese Doji candlestick is a neutral candlestick pattern. It can completely increase or decrease depending on the condition of the market and where it appears
