Doji Candlesticks and Its Main Types

Hello friends. Trading and making money in today's financial markets is not easy. It takes financial knowledge, skills, and analysis. One of these classic methods is technical analysis, and the Japanese candlesticks used within this analysis play a vital role in understanding market movements. Specifically, this article will examine a candlestick pattern called the Doji. We will explore the Doji candlestick pattern in detail, examining its core principles, various forms, and tactical approaches for incorporating it into your trading.

What is the Doji Candlestick?

A Doji is a candlestick where the open and close prices are almost the same, showing the market can't decide. It is also a price pattern on a chart that indicates uncertainty in the market. It forms when the opening and closing prices are almost the same, creating a thin or flat body with long shadows above and below. This means buyers and sellers were active, but neither side managed to move the price much by the end of the session. Doji candles can appear in any time frame and often show a pause after a strong rise or fall. They don't always mark a change in direction, but they can show that the current trend is losing strength or that people in the market are waiting for clearer signals before taking action.

What does a Doji Mean?

The term "Doji" is derived from the Japanese word "douji" and it means "mistake," "indecisive," or "uncertain." It was named this way because such candles are unusual and show a kind of balance between buyers and sellers. According to Japanese candlestick analysis, the Doji is seen as a sign that the market is unsure about its next direction. This makes it an important candle to notice when studying price behavior. 

When a Doji forms, it shows that the market is balanced between buying and selling. If it appears after a long upward move, it may show that buyers are losing energy. If it shows up after a long downward move, it may mean sellers are slowing down. The next candle after a Doji often helps to understand what might come next. For example, if a strong green candle follows a Doji, buyers could be taking charge. If a red candle follows, sellers may be gaining the upper hand. In short, a Doji doesn't give a direct answer on its own, but it helps to see when the market is undecided and when a change could be near.

What the Doji Candle Tells Us

A Doji candlestick shows balance and hesitation in the market. It appears when buyers and sellers are almost equal in strength, causing the opening and closing prices to stay very close. This creates a thin body with upper and lower shadows that show how both sides tried to move the price but could not keep control. Doji candlestick patterns can be interpreted in various ways. In general, the basic interpretations of Doji patterns are as follows:

Reversal Signal. Doji can be interpreted as a reversal signal, especially when it appears at the end of a long trend. For example, if a Doji is observed after an uptrend, it may indicate the beginning of a downtrend or a trend reversal. Similarly, if a Doji is seen following a downtrend, it can signal the start of an uptrend or a trend change.

Indecision Signal. Doji can be a useful sign during periods of market uncertainty or indecision. If prices frequently fluctuate between the opening and closing prices and then a Doji appears, it can be an indicator of the market's indecision.

Continuation Signal. Sometimes, Doji can suggest that the current trend will continue. Especially when a Doji appears in the middle or at the peak of a trend, it can indicate that the trend is still strong or experiencing a temporary period of indecision.

Overall, the Doji is a simple yet powerful candlestick that helps reveal hesitation in the market. By itself, it does not confirm any direction, but when combined with other candles or technical signals, it can give a clearer view of what may come next. Reading a Doji in context is the key to understanding its true meaning.

Main Types of Doji

Doji candlestick patterns come in various types and are often classified based on the relationship between opening and closing prices and the size of their bodies. Each type of Doji shows a different kind of hesitation or balance in the market. The length of the shadows and the position of the body give extra clues about buyer and seller activity. Understanding these small differences helps us read market behavior more clearly and to see when a change or pause may occur. Here are some of the commonly known main types of Doji:

Standard (Normal) Doji

The opening and closing prices are almost equal, creating a very small or nearly invisible body. This pattern shows that neither buyers nor sellers were able to gain an advantage during the session. The price moved both up and down but ended close to where it started, showing a balanced and calm phase in the market. A Standard Doji often appears before a new move begins, making it a key sign of hesitation or rest in price activity.

Long-Legged Doji

Prices experience significant fluctuations throughout the day, but by the end of the day, opening and closing prices are almost the same. This can reflect uncertainty or market indecision. This type of Doji has very long upper and lower shadows, which show that the market tested both higher and lower prices during the session. Despite these swings, neither buyers nor sellers managed to maintain control, resulting in a close near the opening price. Traders often see the Long-Legged Doji as a signal that the current trend might pause or change soon. It highlights moments when the market is exploring different levels but remains uncertain about the next direction. Observing the next candle after a Long-Legged Doji can provide clues about which side may take charge. Learn more about the characteristics and meaning of the Long-Legged Doji at this link:  Long-Legged Doji

Dragonfly Doji

The Dragonfly doji  shows that sellers pushed the price down during the session, but buyers brought it back up close to the opening level. The long lower shadow and absence of an upper shadow indicate that the price tested lower levels but ended the session in balance. A Dragonfly Doji can signal that a downtrend is coming to an end and the market might start moving upward. The candle that comes next can reveal if buyers are stepping in to push prices higher or if the market will hover near the same level. Discover why the Dragonfly Doji can signal shifts in the market and read more here: Dragonfly Doji

Gravestone Doji

The Gravestone Doji forms when prices reach higher levels during a session but end up closing near the opening price. This can happen for several reasons. Sometimes, buyers push the price up, but many participants decide to take profits, leaving the market uncertain. On other occasions, the market tries to break past recent highs but fails, showing that the upward move cannot hold. There are also sessions where prices spike early with excitement but gradually settle back, reflecting fading optimism. The long upper shadow captures these attempts to rise, while the close near the start signals hesitation. Read more about the Gravestone Doji, including examples and explanations, here: Gravestone Doji

The Primary Types of Doji Candlesticks

These are some of the Doji types, and each can reflect different market conditions or emotional states. Each type of Doji has its own interpretation. Interpreting these formations should be done by considering the previous candlesticks and the overall market conditions.

How to Use Doji Candlesticks?

Doji candlesticks are useful tools to understand moments when the market is unsure or about to change direction. Observing their shapes and where they appear in a trend gives us clues about what may happen next. We can see if the market is pausing, ready to reverse, or likely to continue the current move. These candlecticks are more meaningful when we compare them with the surrounding candles and recent price action. While a single Doji doesn't give a complete answer, it helps us notice periods of hesitation and prepare for possible changes in the market.

Is a Doji Bullish or Bearish?

When trying to understand a Doji, it's important to look at the context in which it appears. The surrounding candles and the recent trend can give insights about whether the market is pausing, shifting, or continuing in the same direction .A Doji itself is neither strictly bullish nor bearish. Its meaning depends on where it appears:

Continuation Signal: In a rising trend, a Doji can appear as a short pause before the trend continues upward. For example, on a EUR/CHF chart, you may see a Doji after a strong upward move, followed by another green candle that pushes prices higher.

Trend Continuation with the Doji on EUR/CHF

Indecision Signal: In a sideways or flat market, a Doji shows that buyers and sellers are balanced. On a EUR/GBP chart, it can appear during a period of consolidation, signaling uncertainty without indicating a clear direction.

Doji Indicates Reversal & Sideways on EUR/GBP

Reversal Signal: Dojis can be observed in both uptrends and downtrends. A Doji can indicate financial market uncertainty, a balance of power between buyers and sellers, or a trend reversal. After a downtrend, a Doji can mark the end of selling and the beginning of a rise. On the same EUR/GBP chart, you might see a Doji at the bottom, followed by a green candle starting a new upward move.

When a Doji is observed near support or resistance levels, it can enhance the strength of these levels. If a Doji is seen above support levels or below resistance levels, and prices fail to break through these levels, it can be a strong trading signal.

What Happens After the Doji?

What happens after the Doji is key to getting a clearer picture of how the market is likely to behave. The next candle often confirms whether the trend will continue, reverse, or remain sideways, making the Doji a helpful signal when interpreted carefully. What happens after a Doji depends on the type and the context:

• After a Continuation Signal, the trend usually moves in the same direction as before the Doji.
• After a Reversal Signal, the price may change direction, starting a new trend.
• During Indecision, the market may continue sideways until a strong move occurs.

Observing the candle that follows a Doji is key, as it helps confirm whether the trend will continue, reverse, or remain flat.

What Timeframe is Best for Doji?

Doji candles can appear on any timeframe, from 1-minute charts to daily charts. Shorter timeframes may show many Dojis that don't carry much meaning, while higher timeframes (4-hour, daily) tend to provide stronger signals. It is often better to focus on longer charts when looking for meaningful Doji patterns, especially for continuation and reversal signals.

Doji candlestick patterns, like other Japanese candlesticks, are important tools in technical analysis. These formations are very useful for detecting market indecision and predicting the end of trends or changes in direction. Trading strategies with Doji rely on interpreting Doji candlesticks in conjunction with the overall market conditions.

⚠ These points are general reminders when looking at Doji candlesticks. A single Doji is not enough to make trading decisions, and it works best when considered along with other candles and market conditions. Waiting for confirmation from the next price movement or other indicators can help reduce mistakes. Always keep risk management in mind.