In Forex technical analysis, the reversal Doji candlestick plays an extremely important role. To understand market trends and place trading orders, investors need to observe, evaluate, and analyze candlestick charts. The article below will help readers learn what Doji candles are, the characteristics of each type of candle, and how to apply trading strategies. Let’s take a look at Forex Trading.
Overview of reversal Doji candlestick in Forex
Before diving into how to use the Doji reversal candlestick pattern, traders need to understand the concept and meaning of this candlestick chart.
Answer: What is a Doji candle?
The Japanese Doji candlestick belongs to the group of single candlestick patterns. In which, the opening and closing prices are approximately or equal. The candle body is extremely small, the candle shadow can be long or short. When the Doji reversal candlestick pattern appears, this is a sign that the market is in a state of balance or indecision (both sellers and buyers are struggling).
However, if this chart appears at the end of an up or down trend, this signals that the market trend is weakening.
Meaning of reversal Doji candlestick in trading
In the Forex market, a reversal Doji candlestick is a signal of a price change. Accordingly, this model shows hesitation in the up or down trend. Prices move continuously but no one side dominates. In case the initial trend is too strong, the market will continue to follow the old trend, causing prices to move sideways.
The Doji candlestick pattern also helps investors recognize that the buying side is weakening. This is shown by the fact that bullish candles appear but are gradually smaller in size. At this time, the sellers will grow stronger, push prices down, and hold the market. Prices began to reverse from increasing to decreasing. By observing the Japanese Doji candlestick chart, traders can predict future trends.
See more: Read candlestick charts: Basic & advanced material
Analyze popular types of Doji candlestick patterns
Doji reversal candlestick patterns are very diverse, including Standard Doji, Long Legged Doji, Dragonfly Doji, Four Price Doji, and Gravestone Doji candles.
Standard Doji reversal candlestick pattern
This pattern is the standard Doji candlestick. The body of the candle is quite thin, almost resembling a straight horizontal line. The upper shadow and lower shadow are approximately equal in length, forming a + sign.
In Forex trading, Standard Doji only shows the indecision of buyers and sellers without providing too many important signals. If based only on the Japanese candlestick chart, it is difficult for investors to accurately predict the market trend. Therefore, traders use other tools and technical indicators to place orders effectively.
Dragonfly Doji candlestick analysis
Dragonfly Doji is also known as the flying Doji candlestick pattern. This pattern has the body located at the top of the candle. The lower shadow is quite long, while the upper shadow is very short or almost absent. Dragonfly Doji is shaped like the letter T.
The Dragonfly Doji reversal candlestick pattern appears at the end of a downtrend. When sellers push prices down, buyers begin to intervene. At this time, prices move and are pushed up. The flying Doji candlestick pattern appears, signaling a trend reversal from decreasing to increasing. The long wick acts as a support level that the buyers create to push the price upward.
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Japanese long-legged Doji candlestick pattern
Long-Legged Doji has a rather small body and relatively long upper and lower whiskers. For this chart, the opening and closing prices are approximately equal.
The Long-Legged Doji candlestick appears, signaling that the sellers and buyers are struggling with each other, with neither side gaining the upper hand. Therefore, it is difficult for traders to predict the upcoming trend. You need to patiently wait for the trading signal of the next candlestick chart, or combine other technical indicators to enter the order correctly.
Learn about the Gravestone Doji bearish reversal candlestick pattern
Similar to the Bearish Engulfing candlestick, Gravestone Doji is a candlestick chart that reverses from bullish to bearish. However, unlike the single candlestick pattern, Bearish Engulfing has a structure consisting of two candles: The first candle is green (bullish candle), and the next candle is red (bearish candle) with a very long body.
The Gravestone Doji pattern is shaped like an inverted T. The upper beard is very long, while the lower beard is extremely short or absent. This pattern appears to show that buyers are trying to push prices up but are unsuccessful. The sellers gradually gained the advantage and caused the market price to decline.
Reversal Doji candlestick analysis – Four Price Doji
Compared to the above Doji candlesticks, Four Price Doji is relatively special. This model only has the horizontal god part, without the upper and lower shadow. This is a signal that the opening price and closing price are equal.
Both buyers and sellers are hesitant and indecisive. This leads to the market not having many obvious fluctuations and prices moving sideways. The Four Price Doji candlestick pattern rarely appears and does not provide any trading signals for traders.
How to apply reversal Doji candlestick in trading
From the above sharing, traders have grasped the classification and characteristics of each Doji candlestick pattern. Doji candles can indicate bullish or bearish reversal trends, similar to bullish engulfing candles and bearish engulfing candle. Depending on experience and trading purpose, the way to apply the Doji candlestick chart, bearish engulfing candle, and bullish engulfing candlestick chart will be different.
Identify market price trends
Determining the market price trend is mandatory when applying the candlestick reversal pattern. Traders need to understand whether the market price is trending up or down and whether supply or demand is dominant. Investors can use resistance and support areas, trend lines, and price channels to quickly and accurately determine.
Identify the type of Doji candlestick pattern
Each type of Doji candlestick represents different trends. Understanding the types of reversal Doji candlestick will help investors map out a suitable trading strategy. If the Standard Doji, Long Legged Doji, or Four Price Doji pattern appears, traders need to base on the previous bullish/bearish candles and the location of the support and resistance zones to enter the order.
If the Dragonfly Doji or Gravestone Doji pattern forms, this is a bullish/bearish market reversal signal. Traders can observe these patterns and place orders to buy or sell assets.
Combine the Japanese Doji candlestick pattern with technical indicators to place orders
Candlestick patterns cannot provide 100% accurate trading signals. To confirm the signal of the Doji candle, investors should combine technical tools and indicators such as a Stochastic Oscillator, RSI, MACD, and Bollinger bands,… Through these indicators, investors can Identify overbought and oversold areas in the market, divergence and convergence signals, etc. Thanks to that, you can predict the trend reversal and prepare for your trading strategy.
After confirming a reliable signal, traders should place a buy point at the bullish reversal level and a sell point at the bearish reversal level.
See more: Optimize trading with IC Markets Exchange
Conclude
Reversal Doji candlestick is an effective trading tool that investors should apply in the Forex market. Hopefully, the above article has helped readers understand the characteristics, classification, and trading methods of the Doji reversal candlestick pattern. To update more useful knowledge about investing, don’t forget to visit Forex Trading.
FAQs
Below are some frequently asked questions about the Japanese Doji candlestick pattern in trading.
What should you keep in mind when using the Doji candlestick chart?
Doji candles provide little information about the price. Besides, this model can only predict short-term trends in the market (about 1 – 3 days). If you want to predict and analyze long-term trends, traders should consider using a stronger candlestick chart.
What is the difference between Doji candles and Hammer candles?
Both Doji and Hammer candles have short bodies. However, the Hammer candlestick has a lower wick twice as long as the body formed at the end of a downtrend and signals a bullish reversal. Meanwhile, Doji candles can form at the end of uptrends and downtrends, representing a reversal signal from bullish to bearish or vice versa.
What are the limitations of the Dragonfly Doji candle?
When using the Dragonfly Doji candlestick, it is very difficult for investors to enter orders and set stop losses. This model also does not provide a specific price target. Therefore, it is difficult for you to predict the potential reward of the Dragonfly Doji candlestick chart.
