Doji: Identification, Variants, and Trading Strategies

What Is a Doji?

A doji is a candle whose open and close are at the same or almost the same level. Instead of a body, the chart shows only a horizontal line, with wicks of varying length above and below it; the candle often looks like a cross.

The doji comes from Japanese candlestick analysis and is one of its best-known forms. Steve Nison described it for Western readers in Japanese Candlestick Charting Techniques (1991). He sees it as a sign that buyers and sellers hold each other in balance for one period, and he stresses its importance after an extended rise.

Among candlestick patterns, the doji is a basic form: it can stand on its own, but it also appears as part of other patterns, for example in the harami cross on the page about the harami or in the doji star.

How Do You Identify a Doji?

You recognize a doji by the fact that nothing is left of the move within the candle at the close: the price ends where it started. The textbook does not fix how exactly the open and close must match; it depends on the candles around it.

• The open and close are equal or almost equal; as a rule of thumb, the body is no more than a tenth of the candle's range.
• The length of the wicks determines the variant: long above and below, long only below, or long only above.
• The comparison with neighboring candles matters: among many small candles, a doji hardly stands out, but after a long trend candle it stands out a lot.
• A recognizable trend runs before the candle; a doji can only announce a turn if there is something to reverse.
• Only the next candle decides the direction: a close beyond the high or the low confirms or invalidates the hint.

What Lies Behind the Doji?

Behind a doji lies a balance: within the period, both sides moved the price, but at the close neither has the upper hand. Taken on its own, this is neutral; the candle gains weight only through what happened before it.

In an uptrend, buyers have so far won almost every period. A doji shows that this time they did not, even though the trend suggested they would. If a candle follows that closes clearly lower, the hesitation turns into a change. According to Nison, a doji that follows a long bullish candle in an uptrend deserves particular attention.

In a downtrend, the reverse applies: the doji shows that sellers could not push the price any further. At a bottom, however, Nison considers the candle less meaningful than at a top, because a market can keep falling even without new sellers. Confirmation from the next candle is therefore especially important here.

What Types Exist?

Doji candles differ mainly in where the line sits within the range, and therefore in the length of their wicks. In addition, there are multi-candle patterns in which a doji plays the main role, and names that label a doji by its position in the trend. The table at the end of this section summarizes the forms.

Long-Legged Doji

The long-legged doji has long wicks above and below, and its range is clearly larger than that of the candles before it. The price moved far in both directions and in the end returned to where it started. The candle shows strong indecision, but no direction. If the line sits exactly in the middle of the range, some authors call it a rickshaw man.

Dragonfly Doji

In a dragonfly doji, the open, close, and high are at the same level, with a long wick hanging below. Sellers pushed the price far down, and buyers brought it all the way back by the close. After a downtrend, this points to a possible turn upward. The shape resembles the hammer, which, however, has a small body; the page about the hammer and hanging man explains the difference.

Gravestone Doji

The gravestone doji is the mirror image: the open, close, and low are together, with a long wick above. A rise within the period was rejected completely. After an uptrend, the candle warns of a turn downward. How close it is to the shooting star is shown on the page about the shooting star and inverted hammer.

Four-Price Doji

In a four-price doji, the open, high, low, and close are the same; the candle consists of nothing but a line. It occurs almost only when there is hardly any trading in a period. On the liquid forex and crypto pairs it is rare, and then it says more about the lack of trading than about direction.

Doji Star and Tri-Star

A doji star is a doji that forms after a long trend candle, set apart from its body: in an uptrend above the body of a long bullish candle, in a downtrend below that of a long bearish one. It announces that the trend is stalling. If the third candle closes deep inside the body of the first, the result is an evening or morning doji star; the page about the morning star and evening star explains these patterns.

In the textbook, there is a price gap between the body of the long candle and the doji. In forex and crypto trading, each candle starts at the previous close, so such a gap rarely forms; check on the chart, therefore, how clearly the doji stands apart from the previous candle. Even rarer is the tri-star: three doji candles in a row, the middle one above the other two at a high and below them at a low.

Doji by Location in the Trend

In his Encyclopedia of Candlestick Charts, Thomas Bulkowski also names doji candles by their position: northern doji for a doji in an uptrend, southern doji for one in a downtrend, gapping up doji and gapping down doji for a doji that sits with a gap above or below the previous candle. These names do not describe a separate shape, but the place where the candle stands. FinScans signals use these names too.

When Does a Doji Confirm, and When Does It Not?

A doji confirms when the next candle closes beyond its extreme against the old trend: above its high after a downtrend, below its low after an uptrend. If the price instead closes beyond the other end, the hint is invalidated and the old trend continues.

With the long-legged doji, this question is especially open, because the range is large and both ends lie far from the close. Several periods can pass before a candle closes outside the range; whichever side breaks through first decides the direction. The following chart shows exactly that.

In the false-signal chart, the price first rises and then falls in several waves. After that, a long-legged doji forms: it opens at 106.05, rises to 107.20, falls to 104.95, and closes at 106.07. Both wicks are a little more than one point long, and the range of 2.25 points is a little more than twice the usual range of the candles before it. The next candle closes slightly higher at 106.45, but the one after it closes at 104.70, below the low of the doji. With that, sellers have prevailed; the last candle in the chart closes at 101.05.

Example of Entry, Stop, and Target

A planned trade with the dragonfly doji waits for confirmation from the next candle and places the stop below the long lower wick. The low of this wick is the point where sellers failed; if the price falls below it, the idea is disproven. The target is the swing high where the downtrend began.

In the chart, the price falls from the swing high at 106.60 in several waves. Then a dragonfly doji forms: it opens at 101.20, falls to 99.45, and closes at 101.22; its high is 101.25. The lower wick is 1.75 points long, the body only 0.02 points. A trader waits for the next candle: it closes at 102.05, above the high of the doji, and the buy is made at the close. The stop is just below the low of the wick, at 99.35; the risk is 2.70 points. The target is the swing high at 106.60; the price reaches it after 11 candles, which is 4.55 points. This gives a risk/reward ratio of roughly 1:1.7. Because the doji has hardly any body, the lower wick alone determines the distance to the stop: the longer it is, the further the stop lies from the entry.

How Do You Use the Doji Across Multiple Timeframes?

Doji candles form on every timeframe, and especially often on the short ones. Only a look at the higher timeframes shows whether the candle stands at a place where a turn can be expected, or whether it merely marks a short pause in an ongoing move.

For example, if the price is rising on the 4h and 1d charts while it pulls back for a few hours on the 1h chart, a dragonfly doji at the end of this pullback can signal the end of the correction; the candle then points in the direction of the main move. If the same doji forms in a steep downtrend on the higher timeframes, it is often just a breather. A doji on the 1d chart sums up an entire trading day and therefore carries more weight than one on the 1h chart. On the signal page and in the cockpit, you can see which way the trend is currently pointing on each of the eight timeframes.

How Do News and Scheduled Events Affect the Doji?

Before important scheduled events, a striking number of doji candles form: market participants wait, and the price swings within a narrow range. Such a doji does not show a balance after a trend, only the calm before a release, and is therefore no hint of a turn.

After the release, the picture often reverses: the price jumps first in one direction, then in the other, and at the end of the period a long-legged doji with two long wicks remains. Check the economic calendar, therefore, to see whether an interest rate decision or a labor market report falls within the time of the candle. The news situation in the cockpit also shows whether the reports on the pair tend to point in one direction; after the doji, more then speaks for the side they support.

How Do You Use the Doji in the Four Trading Styles?

How much a doji counts in a trading plan depends strongly on the timeframe. On short charts, doji candles are everyday and mostly meaningless; on the daily chart, by contrast, they are rare enough to reassess a situation.

The Doji in Scalping

In scalping on the 15m and 30m charts, doji candles form constantly, above all in quiet phases when the price barely moves. Most of them show no balance after a trend, simply a lack of movement. Scalpers therefore pay attention to a doji only if a clear, fast move ran before it and it stands at a place that also matters on the 1h or 2h chart, for example at the high or low of the current session. A long-legged doji shortly after a release is, at this level, more a reason to wait than an occasion for a trade. Anyone trading a dragonfly or gravestone doji waits for the close of the next candle and places the stop beyond the long wick. Because target and stop are only a few points apart, spread and slippage weigh heavily. Trading takes place mainly in the liquid London and New York sessions; in the Asian session, thin trading produces many doji candles that mean nothing. The holding period is a few minutes to a few hours.

The Doji in Day Trading

In day trading on the 1h and 2h charts, a doji is often the first sign that a move within the day is running out, for example when the price reaches the previous day's high or low. For the larger direction, day traders consult the 4h or 8h chart: a doji against its trend is more likely to announce a correction than a turn. The trade is taken after the close of the confirming candle, with the stop beyond the doji's extreme in the direction of the old trend. With a long-legged doji, this distance is large; day traders then reduce the position or wait until the price leaves one side of the range. Because all positions are closed by the end of the trading day, they check before entering whether enough time remains to reach the target. Doji candles in the quiet time before the New York open are often just a pause. A doji that stops a breakout shortly after a session begins carries more weight.

The Doji in Swing Trading

In swing trading on the 4h and 8h charts, traders hold positions for days to a few weeks. A doji at the end of a rise or decline lasting several days is a hint to be taken seriously here, especially if it forms at a zone on the 12h or 1d chart. Swing traders pay attention to how the candle fits into the move: if a doji follows a particularly long trend candle, it carries more weight than one after a series of small candles. A doji on the 8h chart spans roughly an entire trading session; that buyers and sellers held each other in balance over this entire time says more than a brief hesitation on the 1h chart. Entry comes only when the next candle confirms the direction; the stop lies beyond the doji, and with long wicks also beyond the next zone. Because positions run overnight and often over the weekend, swing traders allow for gaps at the start of the week in currencies, while cryptocurrencies trade without a break. For many, a doji that forms against an existing swing position is a reason to tighten the stop even before confirmation comes.

The Doji in Position Trading

In position trading on the 12h and 1d charts, trades last weeks to months. A doji on the daily chart after a trend lasting several weeks is a reason to review the situation here, but rarely a reason to enter on its own. Since FinScans has no timeframe higher than 1d, position traders place the candle in context using the course of the 1d chart over several months: does it stand at a high or low that the market has already failed to overcome before? For open positions, such a doji is a reason to secure part of the profits or to trail the stop. Position traders usually open new positions against the old trend only once further daily candles confirm the turn and interest rate policy and economic data support it. Because the range of a daily candle is large, a stop beyond the doji lies far away; this calls for a correspondingly smaller position size.

Doji or Spinning Top?

The doji and the spinning top both show indecision: the price moved in both directions and in the end is not far from where it started. The difference lies in the size of the body.

With the spinning top, a small but visible body remains; with the doji, only a line. A spinning top therefore shows that one side still had a slight advantage at the close; the doji shows a draw. After a trend, many traders read both candles as a sign of fading strength and give the doji somewhat more weight.

What Mistakes Are Common with the Doji?

Most mistakes with the doji happen because the candle is common and looks striking. Anyone who reads every doji as a hint of a turn is mainly trading noise.

• Trading every doji: without a preceding trend and without reference to a zone, a doji only shows that the price made no net progress in this period.
• Skipping confirmation: the doji itself has no direction; only the close of the next candle beyond its high or low provides it.
• Reading the long-legged doji as a reason to buy: the candle is neutral; where the price goes is decided only when it leaves the range.
• Overlooking the location: a doji at an important support or resistance carries more weight than one in the middle of a move.
• Setting the stop too tight: with long wicks, the sensible stop lies far away; anyone who does not adjust the position size goes against sound risk management.

How Doji Triggers Are Named in FinScans Signals

On the signal page, these triggers appear in the trigger table, each with an arrow: ▲ means FinScans counts the trigger on the bullish side, ▼ on the bearish side. Eleven names belong to this page:

• “Long Legged Doji” (▲): A doji with long wicks above and below. The candle itself is neutral; on the signal page it appears in both bullish and bearish signals.
• “Dragonfly Doji” (▲): A dragonfly doji with a long wick below; according to the textbook, at the end of a downtrend.
• “Northern Doji” (▲): A doji in an uptrend. According to the textbook, it is more of a warning that the rise is losing strength; the arrow only shows on which side FinScans counts the trigger.
• “Southern Doji” (▲): A doji in a downtrend; it can announce a turn upward.
• “Gapping Down Doji” (▼): A doji that sits with a gap below the previous candle.
• “Gapping Up Doji” (▼): A doji that sits with a gap above the previous candle; very rare.
• “Bullish Doji Star” (▲): A doji star after a long bearish candle in a downtrend.
• “Bearish Doji Star” (▼): A doji star after a long bullish candle in an uptrend.
• “Collapsing Doji Star” (▼): A bullish candle is followed by a doji with a gap down and then by a bearish candle that lies even lower.
• “Bullish Tri-Star” (▲) and “Bearish Tri-Star” (▼): three doji candles in a row at a low or a high; very rare.

The names “Morning Doji Star” and “Evening Doji Star” belong to the page about the morning star and evening star. The signal page shows no trigger named “Gravestone Doji”. The names describe the shape and position of the candle; whether a trend really ran before it and whether the next candle confirms is something you check on the chart.

The signal page shows no class for candlestick patterns. A doji trigger almost never stands alone: FinScans combines it with the other triggers of the same signal into an overall direction, so a trigger with ▲ can also appear in a bearish signal. Whether the signal runs with or against the larger move is shown by the trend across the eight timeframes and the overall assessment.

The following block shows current data on these triggers. The hit rate should always be read relative to the average: if it is above, the trigger has a statistical edge; if it is below, it is better used as a hint than as the sole reason to enter. The rates can vary considerably by trading style, because there is more noise on short timeframes. The distances to target and stop also play a role: a tight stop is hit more often than a wide one, a distant target less often than a near one.

What the Machine Reports, What You Check Yourself

On the signal page, these triggers appear for forex and crypto pairs; their name describes the candle, not its position in the larger picture. Whether a doji stands at a sensible place and offers a viable setup is something you decide yourself in hybrid trading.

• The machine reports, for example, “Dragonfly Doji” or “Long Legged Doji”; you check on the chart whether a clear trend ran before the candle and how long the wicks are compared with the candles before it.
• The signal page shows the trigger's arrow; you wait to see whether the next candle closes beyond the doji's high or low and thereby sets the direction.
• The machine provides the trend across eight timeframes; you check whether the doji stands at a zone on the higher chart.
• The data block shows the hit rate so far; you check the economic calendar to see whether the doji formed shortly before or after a scheduled event.
• The signal page gives target and stop; you measure the distance from the entry to beyond the doji's extreme and work out whether the risk/reward ratio fits your risk management.

Frequently asked questions

Is a Doji a Buy or Sell Signal?

On its own, neither. A doji only shows that buyers and sellers held each other in balance for one period. It gains a direction only through the trend before it and through the next candle: if that candle closes above its high after a downtrend, this speaks for a turn upward; after an uptrend, the reverse applies.

What Is the Difference Between a Dragonfly Doji and a Gravestone Doji?

Both have no body and only one long wick. With the dragonfly doji, it hangs below: the open, close, and high are together, and a decline was fully recovered. With the gravestone doji, it stands above: the open, close, and low are together, and a rise was fully rejected. The dragonfly counts as a bullish hint after a downtrend, the gravestone as a bearish one after an uptrend.

How Closely Must the Open and Close Match in a Doji?

There is no fixed limit. What matters is the comparison with the surrounding candles: if the body is barely visible relative to the range and to the neighboring candles, the candle is read as a doji. As a rule of thumb, the body is no more than a tenth of the range; Nison calls cases that just miss this a near-doji.

Why Do So Many Doji Candles Appear on Short Timeframes?

On short timeframes, the price barely moves in many periods, especially during quiet trading hours and before important scheduled events. The open and close then happen to lie close together without any balance after a trend behind it. Such doji candles say little; a doji after a strong move or on a higher timeframe carries more weight.

Sources

• Nison, Steve: Japanese Candlestick Charting Techniques, New York Institute of Finance, 1991.
• Bulkowski, Thomas N.: Encyclopedia of Candlestick Charts, John Wiley & Sons, 2008.
• Morris, Gregory L.: Candlestick Charting Explained, McGraw-Hill, 2006.