long legged doji candle appears when the opening price and closing price are almost identical. The formation of the long shadow Doji candlestick shows the hesitation and indecision of investors during that trading session. If you are interested, let Forex Trading explore more details in the article below!
A few things to know about the long-legged doji candle
longlegged doji candle also known as Long Shadow or Rickshaw Man. This is a special candlestick chart created when the closing and opening prices are the same. The easiest way to identify a long-shadow Doji candle is the length of the upper and lower candle shadows. It is far superior to regular Doji candles.
We can see that the closing and opening prices are between the upper and lower candle shadows. They form a shape similar to the long-legged Doji (Rickshaw Man). This indicates that the price movement in the recent session was 5% smaller than the average of the last 20 sessions. Remember that the candle shadow must account for at least 75% of the total height of the original 20 candles.
Long shadow Doji candlestick patterns
Although there are many variations of the Doji candlestick pattern, there are only 5 special candlestick patterns that show strong signals. Among them, Doji candlesticks with long shadows are the most widely used pattern by traders. Above all, not all candlestick patterns provide the same reversal signals. Therefore, it is important that you master the characteristics and principles of each type of reversal candle.
See more: Read candlestick charts: Basic & advanced material
Pattern long-legged doji candle in the bearish direction
When the market is in a bearish phase and creates a price gap, Doji will appear quickly. A short position can push the price lower, however, investors need to pay attention to the timing of the transaction. Because price cuts at the end of the session usually do not have a significant impact.
After the Doji is formed, no trader can accurately predict the price movement. For added assurance, traders should wait patiently until a new candle appears. Buyers can push the price up and create a bullish candlestick pattern. Then, Forex investors are encouraged to use the Bullish Morning Star Pattern model.
When a bearish candle appears after a Doji candlestick pattern, the Doji pattern becomes a “breathing” opportunity. It indicates that the market is still maintaining a downtrend. The second candle can be interpreted as a confirmation that the Doji gap down is intact. Besides, investors can refer to the bearish engulfing candle pattern to increase the likelihood of success in their trading strategy.
Long shadow Doji candlestick pattern in the bullish direction
On the contrary, a Doji appears with an opening gap. We can predict that the long legged doji candle bullish pattern appears in an uptrend. Investors can choose to buy to push the price up. However, it should be noted that the bullish strength may not be strong enough at the end of the trading session.
When the trading session ends with a newly formed Doji pattern, investors will not be able to predict the next price action. They should wait until the next day to confirm the market’s direction.
Or sellers can push the market price down and create a bearish candlestick pattern immediately afterward. At that time, the Bearish Evening Star pattern will form. If a bullish candle appears after the Doji candle, then that Doji represents a day off for buyers. At the same time, it shows signs of continuing the uptrend. The second bullish candlestick pattern provides traders with information about a bullish Doji gap.
Meaning of bullish long shadow Doji candlestick pattern
This long-legged Doji has almost equal lengths of the upper and lower shadows. This represents uncertainty in the market. Looking at it, investors can see that the trading price has moved very far compared to the opening price of the trading session. However, at the time of closing, the price returns to near the opening price. After the upheaval, the final results only showed that there were not many significant changes.
The long-legged Doji pattern is not always a reliable reversal signal. The appearance of this pattern usually only indicates hesitation in trading decisions. Usually, it appears in markets that are experiencing a sharp increase or decrease. When a Doji candlestick is present, it is simply a signal indicating the strengthening of momentum in the current trend. It can be either increasing or decreasing. It is important that investors think carefully. At the same time, they need to make accurate buying and selling decisions when encountering the Doji candlestick pattern.
Additionally, Long-Legged Doji often appears on the daily chart. To better understand the next trend, investors need to coordinate with other indicators. This combination is an important factor that helps traders make the most accurate and effective decisions. If Long-Legged Doji appears above important moving averages such as MA21 and MA50, the signal of a market reversal will become more reliable.
Effective trading method with Doji candlestick pattern and model long legged doji candle
In fact, there are many different methods to trade with the Doji candlestick pattern. However, investors need to look for additional signals to increase their chances of success. Notably, no transaction is 100% perfect. Although the success rate can be as high as 90%, the risk of failure still exists. Therefore, investors need to establish a strict and appropriate risk management plan.
Trading entry point long-legged doji candle
Traders can start placing trades as soon as the Doji candlestick pattern forms at the top or bottom of the trend. However, choosing an entry point requires more caution on the part of traders.
On the chart of the GBP/USD currency pair, we have a Doji candlestick pattern that appeared at the lowest point of the downtrend. The appearance shows that neither buyers nor sellers have the power to dominate the market. It could be a sign of a reversal in the current trend.
This is the time when Traders should integrate other indicators to confirm the reversal signal. Based on the example below, Traders can see that the Stochastic indicator is used to identify oversold areas. Therefore, you can start opening orders as soon as the Doji candlestick pattern appears. Or to be safer, you can wait until the second confirmation candle before placing an order.
Stop Loss – Stop Loss position on the candlestick pattern
- When the market transitions and corrects downward: The stop loss position is placed at the top of the Doji pattern.
- When the market transitions and corrects upward: The stop loss position is placed at the bottom of the Doji model.
In case a trader encounters a Doji candle with a long tail and large shadow, the appropriate stop loss can be placed approximately 2/3 to 1/2 of the entire length of that Doji candle.
Take Profit – Trading profit taking point long legged doji candle
To locate your ideal take profit point, aim for resistance. After determining this point, the trader needs to evaluate the R: R (Risk: Reward) ratio. The purpose is to decide whether they should enter the transaction or not. It is important to remember that the minimum ratio that should be set is always 1/2.
An example is the case of two consecutive Doji candlestick patterns
The article has focused on a specific analysis of trading in the market when only one candlestick pattern appears. However, reality shows that the case of two Doji candles appearing consecutively is also quite common. For example, the combination of a Doji candle with a short shadow and a Doji candle with a long tail
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The combination of two adjacent Doji candles creates a strong reversal signal. In this situation, placing a SELL order near the lower end of the Doji pattern is a reasonable choice. Setting a stop loss slightly above the peak of the Doji and a take profit level closest to the support point is a wise strategy. When a Trader executes an order, the price usually moves in the expected direction of the chart, showing a downward slope. Then, Trailing Stop is the best option that traders can apply in this situation.
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The perfect trading combination between the Doji candlestick pattern and RSI
Investors on many forex brokers can use a combination of strong resistance and support levels to find trading opportunities with Doji candles. In these price zones, the possibility of a trend reversal will be higher.
As a basic rule: Every opportunity can lead to success. However, if you combine multiple reversal data simultaneously. Then, the ability to win and gain profits will increase significantly.
Traders also need to avoid basically forcing orders. Because this can lead to a rapid decrease in funds in the account. When combining RSI with the Doji candlestick pattern in the market, the risk of losing capital will gradually decrease. It will then open up opportunities for traders to gain significant profits.
Conclude
Long shadow Doji candles play an important role in market analysis. It delivers many strong signals. From the above information, traders can easily recognize this model through its characteristic characteristics. Furthermore, they will clearly understand the role of this Doji candle in the forex market. Thereby, they can make transactions successfully. That’s all the basic information Forex Trading provides you about long legged doji candle. If you have any questions, please contact Forex Trading for dedicated answers!
Frequently asked questions about long legged doji candle
How do recognize long legged doji candle?
To recognize a long shadow Doji, you need to look for a candlestick with a small or very small body. In addition, two candle shadows are long and nearly equal. They show that the price moved high and low over a large range but ultimately ended up near the opening point.
What does the long shadow Doji candlestick mean when it appears in the chart?
This could be a sign of uncertainty and changes in market sentiment. It could be a warning signal of a potential reversal. Or it could be a correction in the current trend.
What is the trading strategy long legged doji candle?
A popular strategy when trading long-legged Doji is to wait for confirmation from candlestick patterns or other technical indicators before making a trading decision. If a long-legged Doji appears near a key support or resistance level, this can increase the certainty of the signal.
