The Doji

DOJI STAR

The Doji is also comprised of one candle. The Japanese say when a Doji occurs, one should always take notice. It is one of the most important Candlestick signals. The formation is created when the opening price and closing price are the same. This forms a horizontal line. The implication is that the bulls and the bears are in a state of indecision. It is an important alert at both the top and bottom of trends. At the top of a trend, the Doji signals a reversal without needing confirmation. The rule of thumb is that you should close a long or go short immediately.

However, the Doji occurring during the downtrend requires a bullish day to confirm the Doji day. The Japanese explanation is that the weight of the market can still force the trend downwards.
The Doji is an excellent example of the Candlestick method having superior attributes compared to the Western bar charting method. The deterioration of a trend is not going to be as apparent when viewing standard bar charts.
Criteria
1. The open and the close are the same or nearly the same.
2. The length of the shadow should not be excessively long, especially when viewed at the end of a bullish trend.

Signal Enhancements
1. A gap away from the previous day’s close sets up for a stronger reversal move.
2. Large volume on the signal day increases the chances that a blowoff day has occurred although it is not a necessity.
3. It is more effective after a long candle body, usually an exaggerated daily move compared to the normal daily trading range seen in the majority of the trend.

THE LONG LEGGED DOJI (JUJI)

The Long Legged Doji is comprised of long upper and lower shadows. The price opened and closed in the middle of the trading range. Throughout the day, the price moved up and down dramatically before it closed at or near the opening price. This reflects the great indecision that exists between the bulls and the bears. Juji means “cross.”

GRAVESTONE DOJI (TOHBA)

The Gravestone Doji is formed by the open and the close being at the low of the trading range. The price opens at the low of the day and rallies from there, but by the close the price is beaten back down to the opening price. The Japanese analogy is that it represents those who have
died in battle. The victories of the day are all lost by the end of the day. A Gravestone Doji, at the top of the trend, is a specific version of the Shooting Star. At the bottom, it is a variation of the Inverted Hammer. The Japanese sources claim that the Gravestone Doji can occur only on the ground, not in the air. This implication is that it works much better to show a bottom reversal than a top reversal. However, a Doji shows indecision no matter where it is found.

THE DOJI’S DRAGONFLY DOJI (TONBO)

The Dragonfly Doji occurs when trading opens, trades lower, and then closes at the open price that is the high of the day. At the top of the market, it becomes a variation of the Hanging Man. At the bottom of a trend, it becomes a specific Hammer. An extensively long shadow on a Dragonfly Doji at the bottom of a trend is very bullish. Dojis that occur in multiday patterns make those signals more convincing reversal signals.

Candlestick Basic

Long Days

The long day represents a large price move from open to close. Long represents the length of the candle body. What qualifies a candle body to be considered long? That is a question that has to be answered relative to the chart being analyzed. The recent price action of a stock determines
whether a long candle has been formed. Analysis of the previous two or three weeks of trading should be a current representative sample of the price action.

Short Days

Short days can be interpreted by the same analytical process as used with the long candles. There is a large percentage of trading days that do not fall into either of these two categories.

Marubozu

In Japanese, Marubozu means close-cropped or close-cut. Bald or Shaven Head is more commonly used in Candlestick analysis. Its meaning reflects the fact that there are no shadows extending from either end of the body.

Black Marubozu

The long black body with no shadows at either end is known as a Black Marubozu. It is considered a weak indicator. It is often identified in a bearish continuation or bullish reversal pattern, especially if it occurs during a downtrend. A long black candle could represent the final
sell off, making it an alert to a bullish reversal setting up. The Japanese often call it the Major Yin or Marubozu of Yin.

White Marubozu

The White Marubozu is a long white body with no shadowson either end. This is an extremely strong pattern. Consider how it is formed. It opens on the low and immediately heads up. It continues upward until it closes, on its high. Counter to the Black Marubozu, it is often the
first part of a bullish continuation pattern or bearish reversal pattern. It is called a Major Yang or Marubozu of Yang.

Closing Marubozu

The Closing Marubozu has no shadow at its closing end. A white body does not have a shadow at the top. A black body does not have a shadow at the bottom. In both cases, these are strong signals corresponding to the direction that they each represent.

Opening Marubozu

The Opening Marubozu has no shadows extending from the open price end of the body. A white body would not have a shadow at the bottom end; the black candle would not have a shadow at its top end. Though these are strong signals, there are not as strong as the Closing Marubozu.

Spinning Top

Spinning Tops are depicted with small bodies relative to the shadows. This demonstrates some indecision on the part of the bulls and the bears. They are considered neutral when trading in a sideways market. However, in a trending or oscillating market, a relatively good rule of
thumb is that the next day’s trading will probably move in the direction of the opening price. The size of the shadow is not as important as the size of the body for forming a Spinning Top.

Doji

The Doji is one of the most important signals in Candlestick analysis. It is formed when the open and the close are the same or nearly the same. The lengths of the shadows can vary. The longer the shadows are, the more significance the Doji becomes. ALWAYS pay attention to the Doji.