The doji candlestick is one of the most important candlestick patterns in trading, when this form of candlesticks, it tells us in our technical analysis that the market opens and closes at the same price which means that there is equality and indecision between buyers and sellers, there is no one in control of the market (neither bulls nor bears).
As you can see the opening price is the same as the closing price, this signal or Japanese candlestick means that the market has not decided which direction it will take. This helps to carry out a technical analysis when we make a purchase or sale in the trade. When this pattern occurs in an uptrend or a downtrend, it indicates that the market is likely to reverse.
The chart above shows how the market changed direction after the formation of the Doji candlestick. The market was trending up, meaning that the buyers were in control of the market.
The Doji candlestick formation indicates that buyers are unable to sustain price higher, and sellers push prices back to the opening price.
This is a clear indication that a trend reversal is likely to occur. Always remember that a Doji candlestick in trading indicates equality and indecision in the market, you will often find that during rest periods after large moves higher or lower.
When it is at the bottom or top of a trend, it is considered a sign that a previous trend is losing its strengths. So we can use this type of Japanese candles when trading on the stock market.
So if you are already riding that trend it is time to take profits, it can also be used as an entry signal if combined with other technical analysis.
The Dragonfly Doji Pattern
The Dragonfly Doji is a bullish candlestick pattern that forms when the opening and closing highs are the same or close to the same price. What characterizes the Dragonfly Doji is the long tail that the bottom shows resistance to buyers and their attempt to push the market higher.
The illustration above shows us a prefect Doji dragonfly. The long lower tail suggests that the forces of supply and demand are nearing equilibrium and that the direction of the trend may be approaching a major turning point.
See the example below indicating a bullish reversal signal created by a Doji dragonfly.
In the chart above, the market was testing the previous support level which caused a strong rejection from this area. The formation of the Dragonfly Doji with the long tail below shows us that there is high buying pressure in the area.
If you can identify this candlestick pattern on the chart, it will help you visually see where support and demand meet. When it occurs in a downtrend, it is interpreted as a bullish reversal signal.
But as I always say, you cannot trade candlestick pattern alone, you will have to take other indicators and instruments to determine the high probability Dragonfly Doji candlestick signals in the market. However, they are good patterns (with bullish and bearish signals) to take into account in our trading when we are operating in the stock market.
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