š
Trading Price Action Using DOJI Candlestick Pattern (Doji Forex Trading Strategy) - YouTube
Channel: The Secret Mindset
[0]
The doji candle is one of the most famous
patterns followed closely by price action
[5]
traders.
[6]
A doji candle pattern appears when the open
price and close price for a determined period
[12]
are the same, or very close to being the same.
[16]
The lengths of the shadows can be different.
[19]
The perfect doji has the same open price and
close price, however, something must be considered.
[25]
If the difference between the open and close
prices is within a few ticks, this could also
[31]
be interpreted as a doji.
[34]
When youāre not sure if a candle should
be considered a doji or not, just follow the
[38]
recent price action.
[40]
If the previous candles had open and close
prices within a few ticks, then probably you
[46]
should not consider the current candlestick
as a doji.
[49]
If the pattern forms alone, thatās a valid
doji.
[55]
In this chart, we see several candlesticks
that could be interpreted as a doji pattern.
[61]
But, looking at the bigger picture and at
the price action as a whole, we should not
[66]
consider the candles as doji, as they offer
no relevance to the current trend.
[71]
As you can see, this interpretation is quite
subjective and there are no strict rules but
[77]
to look at recent price action.
[79]
A series of very small real bodies as in this
example would not be read as doji candles.
[89]
Another technique is based on recent support
and resistance levels.
[93]
If the market is at an important market support
or resistance and there are other technical
[99]
signals, the appearance of an uncertain doji
candle could be interpreted as a doji.
[105]
Looking at this example, we are at an important
level of support, tested several times in
[110]
the past.
[111]
The highlighted candle could be interpreted
as a doji pattern, as it formed near an important
[117]
level.
[119]
Now, how to read doji candlestick.
[123]
First, doji meaning market indecision.
[126]
One of the most important values of a candlestick
chart is the ability to read market sentiment.
[133]
A doji candle is the perfect example for reading
market sentiment.
[137]
This pattern is an outcome of indecision in
the market.
[141]
A doji candlestick suggests a lack of control
in the market either by the bulls or the bears.
[148]
The lack of direction is clear: bulls moved
prices higher, bears moved prices lower, but
[154]
in the end, the market price closed exactly
or very close to where it opened.
[159]
Now, if the doji candle highlights market
indecision, it is safe to say that it does
[165]
not offer insight into whether bulls or bears
are in control.
[169]
You have to guess the marketās next direction.
[172]
So, the first thing you should take note is
to use doji candle in combination with other
[178]
technical indicators or price action, never
on its own.
[184]
Doji candle meaning possible reversal.
[188]
Doji candle offers traders an early warning
that there may be a change in market momentum
[193]
or a possible change in direction if current
conditions donāt change.
[197]
Please remember that the āpossibilityā
of a change of direction does not represent
[202]
a guaranteed change of direction.
[205]
The truth is that we donāt know if a trend
is exhausted.
[208]
We donāt know the exact moment when the
trend is going to end.
[212]
A doji will not guarantee that a certain setup
will occur or that the market will reverse.
[218]
Traders incorporate doji in their analysis
in an effort to try to predict future price
[223]
movements.
[224]
They try to get the probabilities in their
favor as much as they possibly can.
[228]
So, a doji candle by itself is not significant
enough to predict a reversal in prices, it
[234]
represents only a warning of an impending
trend change.
[239]
Steve Nilson, the person that introduced candlesticks
to western traders, affirmed that doji candles
[246]
tend to be better at indicating a change in
trend when they occur at market highs instead
[251]
of at market lows.
[253]
This could be explained by the fact that for
an uptrend to continue, new buying power must
[258]
be present on the market, while a downtrend
could continue at full strength without becoming
[264]
weaker.
[266]
Doji pattern near support and resistance
Doji candles formed at relevant market highs
[273]
or lows can sometimes turn into support or
resistance areas.
[278]
When forms in the middle of a trend or trading
range, a doji candle has little significance.
[285]
Doji candles are commonly met during periods
of consolidation and can help traders to spot
[290]
potential price breakouts.
[293]
When it forms near round numbers or around
previous levels of support and resistance,
[298]
pivot points or Fibonacci retracements, doji
candles offer traders decent entry points.
[304]
There are five different types of doji candles:
The first type is the common doji.
[310]
A common doji is the candlestick pattern we
talked before.
[314]
A doji candle pattern appears when the open
price and close price for a determined period
[320]
are the same, or very close to being the same.
[324]
Next we have the gravestone doji.
[326]
A gravestone doji forms when the doji is at,
or very near, the low of the period.
[333]
As the upper shadow is quite long, this means
that the gravestone doji is a bearish pattern.
[340]
The bearish outlook of the pattern is evident:
the price opened and traded higher all the
[345]
period, but closed where it opened, which
also coincides with the low price for the
[351]
period.
[352]
Gravestone doji can also be interpreted as
a failed rally.
[357]
Traded by itself, this pattern is not profitable.
[361]
Just look at the picture above, the price
indeed declined after the appearance of a
[365]
gravestone doji, but not before taking some
stop-losses on its way.
[370]
Thatās why itās better to trade this pattern
near strong support and resistance levels
[376]
and in combination with other indicators.
[380]
Then we have the dragonfly doji.
[383]
The dragonfly doji forms when the open price
and close price are at the high of the period.
[388]
As this pattern has a long lower shadow this
means that dragonfly doji is a bullish pattern.
[395]
The bullish outlook of the pattern could be
explained as follows: the price opened and
[401]
traded lower all the period, but closed where
it opened, which also coincides with the high
[407]
price for the period.
[409]
This means that despite the selling pressure,
the bulls entered the market strong and pushed
[414]
the price back up.
[416]
As in the case of gravestone doji, this pattern
is not profitable when traded by itself.
[422]
If we look at the picture above, the dragonfly
doji pattern formed near an important level
[428]
of support, which indeed drove the price higher.
[431]
Thatās why itās important to trade this
pattern near strong support and resistance
[436]
levels and in combination with other tools.
[441]
Next type is the long-legged doji.
[444]
The long-legged doji has long upper and lower
shadows in the middle of the periodās trading
[450]
range, reflecting the indecision of buyers
and sellers.
[454]
Throughout the period, the market moved higher
and then sharply lower, or vice versa.
[460]
It then closed at or very near the opening
price.
[464]
This signals market indecision, as neither
the bulls nor the bears won the battle.
[470]
From my experience long-legged doji candles
will offer many false signals and should only
[475]
be traded on higher time frames and in combination
with other technical tools.
[481]
The last type is the rare doji.
[484]
The rare doji occurs the open, high, low,
and close of the price are all the same.
[490]
This pattern forms when a market is very illiquid
or the data source did not have any prices
[496]
other than the close.
[498]
The rare doji pattern should be interpreted
as a complete and total uncertainty in the
[503]
market direction.
[505]
Now, this is how I trade the doji.
[509]
Like I said before, I always take trades only
around support and resistance areas.
[514]
You can use recent market swings or fib retracements,
but I prefer to use pivot points.
[521]
This chart shows the exact sequence we need:
a doji formed around a pivot point level.
[528]
The next one to three candles after a doji
forms must close above the high of that doji
[534]
candle.
[535]
That is the key; the close is the confirmation
that a bullish transition took place.
[539]
So in this pattern, we are looking for a specific
conditional change to take place in the market,
[545]
namely, a higher closing high above a dojiās
high, but must occur near a pivot point level.
[552]
Thatās the most important part of this setup
which will help to eliminate and filter out
[557]
false signals.
[559]
Initially, use stop below the low of the doji.
[563]
Once the market begins to produce a profit
and moves in the desired direction, then you
[569]
can change it or continually trail the stop.
[572]
If you donāt like to trade 100% price action,
you can also use a āfilterā or backup
[578]
process to confirm the buy signal with other
indicator (stochastic, moving average, whatever
[585]
you prefer)
[587]
Here is another example, on a 15-minute chart
on the British pound US dollar.
[592]
Once we added our pivot points, we have our
first area of interest here.
[598]
As you can see, the market traded around the
pivot level and a doji pattern formed.
[603]
He have a close above the dojiās high.
[608]
Also note that the market closed above the
moving-average which is also bullish.
[615]
Once we have a close above the high of the
doji, we can start searching for long entries.
[622]
To summarize, when you identify a doji at
or near the pivot level, wait for confirmation
[629]
of the next candle to close above the dojiās
high.
[634]
Here are other examples of trades, using doji
patterns around pivot levels.
[657]
Looking at these examples, i hope you noticed
that I prefer to consider doji candles as
[662]
accumulation zones where bull or bears are
gaining momentum for a continuation of the
[667]
main trend.
[668]
Iām not chasing reversals like most of traders,
Iām looking for continuation patterns.
[674]
And I always combine this doji pattern with
other technical tools, to confirm the main
[680]
trend.
[682]
If you got any value from this and learned
something new, donāt forget to subscribe,
[685]
hit the bell icon and leave us a like to show
your support.
[689]
Until next time.
Most Recent Videos:
You can go back to the homepage right here: Homepage