EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887
EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887

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Doji formations provide information on possible trend reversals

Rule of thumb

Doji formations are one of the important indicators that can be used in strong upward or downward trends

Chart type: Candlestick

Applies to: Reversal

Significance: High

 

Doji formations are important formations of the candlestick chart analysis. They  are represented by a very small body - where the opening price is (almost) identical  to the closing price. In general, Doji formations represent indecision and uncertainty on the market, and may be divided into 4 types: Common Doji, Long Legged Doji, Dragonfly Doji, and Gravestone Doji.

 

Common Doji

Common Doji looks like a “+” signal, where the open price equals the closing price. 

 

Common Doji

 

When occurring after a sharp upward or downward trend, usually a trend reversal is indicated.

 

Long Legged Doji

Long Legged Doji are represented by significantly longer shadows, and the body should be ideally in the middle. Investors should be aware of how to interpret this type of Doji, by analysing previous and next candles, since it simply represents indecision in a volatile market, without any continuation or reversal patterns.

 

Long Legged Doji

 

This type of Doji takes more importance in a significant upward or downward trend, and when the shadows are long, they might indicate a change of heading in trend.

 

Dragonfly Doji

Dragonfly Doji are represented in a downward trend, by the opening price being equal to the closing price and the period’s maximum price.

 

Dragonfly Doji

 

Although, it is difficult to come across this formation, when one does , it might be a good indicator of a major trend reversal.

 

Gravestone Doji

Gravestone Doji are similar to the Dragonfly Doji, but their shape is close to an inverted letter “T”.

 

Gravestone Doji

 

They have the same meaning, although Gravestone Doji are met in a rising trend, and might indicate a major trend reversal.

 

How to use it with MetaTrader 5:

  • Select the candlestick chart with the Candlesticks icon.
  • Search for a clearly visible and significant upward or downward trend.
  • Look for a candle that resembles any of the above mentioned Doji patterns.
  • Assure with the next candle(s) that the trend is, in fact, reversing.

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