What it looks like
The body is very small or a flat line because the open and close are almost equal, typically a body under about a tenth of the candle's full range. The wicks can be any length. Related shapes include the long-legged doji (long wicks both ways), the dragonfly doji (long lower wick) and the gravestone doji (long upper wick).
What it means
Neither side won the candle. After a strong move, that hesitation can be the first sign the move is tiring, because the side that had been in control could not finish the candle on its terms. In a quiet, sideways market the same candle means nothing, which is why the break of its high or low matters more than the candle itself.
How to trade it
- 1
Never trade it on its own. Mark the candle's high and low.
- 2
Confirmation: a later candle closes above the high (buy signal) or below the low (sell signal).
- 3
Entry: at the close of that breakout candle.
- 4
Stop: on the other side of the doji. Example on gold: after a 40 point rally a doji forms from 4,048 to 4,054. A candle closes at 4,046, below the low. Sell at 4,046 with a stop at 4,056, a 10 point risk.
- 5
Target: the next key level, or 2 times the stop.
Price closes back inside the candle's range after breaking out of it.
Where it works best
After a strong move into a key level on 1 hour to daily charts, where hesitation actually means something.
WickSpeak spots every doji automatically and names it on the candle that made it. The note says what it is, that it should not be traded alone, how to trade the break of its high or low and what proves that break wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Treating every doji as a reversal signal.
- Trading dojis in quiet, sideways markets where they appear constantly.
- Entering before a candle closes beyond the doji's high or low.
Related patterns
Questions traders ask
Is a doji bullish or bearish?
Neither on its own. It shows indecision. The direction comes from the next close beyond its high or low.
What does a doji mean after an uptrend?
It can be the first sign the rise is tiring, because buyers could not close the candle higher. It still needs a close below its low to become a sell signal.
How do you trade a doji?
Mark its high and low. Buy a close above the high or sell a close below the low, with the stop on the other side of the doji.
What proves a doji breakout wrong?
A close back inside the doji's range after the break. The indecision has not been resolved.