A dodgy candlestick is characterized by the fact that the opening and closing prices are almost the same, or very close to each other, causing the body of the candlestick to remain very small with shadows on either side. The length of the candle’s shadows can vary – a small body is the main sign of a doji.
A doji can form in any timeframe, from minute charts to daily or weekly charts, because the chart is fractal and it is important to realize that the older the timeframe, the more valid the doji can be considered. It also signals that neither buyers nor sellers were able to gain an advantage during the candle formation period.
Types of Doji
Doji can be categorized into several types, depending on the length of the upper and lower shadows:
A standard doji is a basic type of doji in which the opening and closing price are the same, or nearly the same, and the upper and lower shadows may be the same length or have slight differences. It often indicates market uncertainty.
Long-legged Doji This doji has very long upper and lower shadows, indicating high volatility and a struggle between buyers and sellers.
Dragonfly Doji This doji has a long lower shadow and no upper shadow. It often appears at the bottom of the market and can signal a potential upward reversal.
Gravestone Doji (Gravestone Doji) This Doji has a long upper shadow and no lower shadow, often appears at the top of the market and signals a potential downturn.
Four-Price Doji This candlestick has the same open, close, high and low prices, indicating a completely neutral market situation.
What does a doji mean in market analysis?
Doji usually indicates indecision in the market. It indicates that the current trend may be losing its strength, and a reversal or the beginning of consolidation is possible. Depending on where the doji appears (at a support level, resistance level, or within a trend), its interpretation can vary:
- In an uptrend: a doji at the top of an uptrend can indicate weakening upward momentum and a possible decline;
- In a downtrend: a doji at the bottom of a downtrend may indicate weakening downward momentum and a potential upward reversal;
- During a sideways movement: a doji in a sideways movement confirms uncertainty and lack of clear market dynamics.