Among the many formations of candlesticks, the doji is regarded as being the one with the highest importance.
This pattern is usually found when both sellers and buyers are exercising the same pressure on the forex market, resulting in an overall uncertainty and indecision.
A wide trading range is illustrated by the doji formation. However, no upside or downside bias closure of prices is observed.
The doji pattern lacks a body, which is substituted by a horizontal line. This horizontal line comes with long wicks.
Under the following conditions, the doji gives different signals:
- Range trading – a neutral market is signified
- An upward market – the price has probably reached its peak and soon will start to fall.
- A downward market – the price has probably reached its bottom and soon will start to rise.
From the provided information above, it can be concluded that the doji formation can be used as a signal of eventual tops and bottoms.
Doji patterns shouldn’t be used in isolation. Instead they should be compared to recent price movements. The importance of the signals sent by the doji is minimized if a series of small candles has been observed. On the other hand, the importance of the doji is stressed if it is preceded by a long white candle if the market is going up or a long black candle if the market is going down.
Double doji refers to the equilibrium state in which buyers and sellers are. Thus, typically it can be interpreted as a sure signal that a trend reversal will occur.