The Doji, Long-legged Doji and Gravestone Doji are candlestick chart patterns which signal a potential pause or indecision in the market. In this article we will show you how to identify them in the right market position with real chart examples.
The Doji Long-legged Doji and Gravestone Doji Candle Pattern is a candle pattern which signals indecision in the market. The Pattern can be interpreted as Bullish, Bearish or Neutral depending on where it forms.
Doji Candle Pattern Criteria:
- A Doji is a candlestick in which the opening and closing prices are the same.
- If the opening and closing price are within a few ticks of each other, the line can still be viewed as a Doji.
- There are 3 types of Doji candles: Doji, Long-legged Doji and Gravestone Doji.
- The Doji is similar to the Spinning Candle which also represents indecision. However a Doji Candle has no real body.
- Doji represents indecision, uncertainty or vacillation. So when it appears at the top or bottom it can indicate that the market lost momentum and might reverse. This has to be in up-trending or down-trending markets
- The doji is a distinct change signal. However, the likelihood of a reversal increases if subsequent candlesticks confirm the doji’s reversal potential.
- Doji sessions are important only in markets where there are not many doji. If there are many doji on a particular chart, one should not view the emergence of a new doji in that particular market as a meaningful development.
- The doji tends to be a more significant signal in the up-trending market at the top, than in a down-trending market at the bottom.
- Overall a weak signal that generally represents indecision and traders should wait for further confirmation.
Quick Reference Guide – Candlestick Basics. If you need a reminder of what candlesticks are have a look at our free PDF – Candlesticks Explained.
The criteria and examples above are just the technical definitions of this pattern. However patterns are only useful with context and with real chart examples.
No pattern will ever exactly match the criteria and in order to be a useful signal must occur in the correct place in a trend. Let’s start by looking at the the classification table for this pattern.
Doji, Long-legged Doji and Gravestone Doji Candle Pattern Classification Table
|Number of Candles In Pattern||1|
|Market Conditions: Range, Down-trend, Up-trend||Up-trend, Down-trend, Ranging|
|Position: Top, Bottom, Range||Top, Bottom, Range|
Bullish Doji, Long-legged Doji and Gravestone Doji Candle Pattern Classification Table
|Number of Candles In Pattern||1|
|Market Conditions: Range, Down-trend, Up-trend||Down-trend, Ranging|
|Position: Top, Bottom, Range||Bottom|
Bearish Doji, Long-legged Doji and Gravestone Doji Candle Pattern Classification Table
|Number of Candles In Pattern||1|
|Market Conditions: Range, Down-trend, Up-trend||Up-trend, Ranging|
|Position: Top, Bottom, Range||Top|
What Price Action Do The Doji, Long-legged Doji and Gravestone Doji Candle Patterns Represent?
All candlestick patterns are formed by price action. But the popular ones represent price action that may have significance in signalling the direction of the market.
The Doji candle forms when both buyers and sellers push the price during a trading range but neither gains control. When the price closes at the same place it opened, despite ranging both up and down in the period a Doji candle is formed.
If this occurs after a strong trend either up or down, it can signal that the trend is running out of steam and may potentially reverse.
If the market is down-trending and a Doji candle forms then this is a Bullish Doji. If the market is up-trending and a spinning candle forms then this is a Bearish Doji.
As this pattern by definition represents indecision, it is a signal to the trader that more information is needed before making a decision. You should wait for confirmation to see whether this is just a pause or potential for a reversal.
This confirmation can be in the form of another technical indicator or if the spinning candle forms at an area of support (Bullish Doji) or resistance (Bearish Doji).
Bullish Doji Candle Example With Confirmation
In the example below of the US500, the market had tested an area of support previously. After moving up it then moved back down on strong price action.
At the same level of support, despite the strong bearish candles preceding it, the market paused and neither bears nor bulls could move the price to close away from the open and a Doji formed.
The market then reversed, allied and formed an up-trend after breaking through the previous resistance to the upside.
Bearish Doji Candle Pattern Example With Confirmation
In the example below the US500 market was in an up-trend with good momentum. As it neared resistance at the round level it briefly broke through but the formation of a Doji candle indicated a potential reversal.
The market quickly reversed down before retesting the round level and suffering a second rejection which then led to the reversal of the previous trend.
This is a good example of where a pattern coincides with an area of resistance which can help the trader to feel more confident in the signal and the potential for a good trade.
In What Market Conditions Does The Doji Candle Pattern Become A Signal?
To recap, the Bullish Doji can be seen as a potential signal when forming at the bottom of a down-trend or the bottom of the range.
The Bearish Doji is more significant than the Bullish and can be seen as a potential signal when forming at the top of an up-trend or the top of the range.
On the whole the Doji represents indecision more than it does a reversal and should only be a signal to look for further confirmation before entering a trade.
Bullish Doji Candle Pattern In A Ranging Market
A ranging market is one where the price action moves up and down between two sets of support and resistance. This is also known as a sideways, balancing or horizontal market. In essence the price action is struggling to break out of the range decisively either on the upside or downside.
In a ranging market a Doji Candle can be a helpful signal to validate the top or bottom of the range. As you can see in this example of the US30 the market was ranging and Bullish Doji occurred at the bottom end of the range.
This was potential confirmation that the bottom of the range would hold and the market subsequently reversed.
Bullish Doji Candle Pattern In A Down-Trending Market
A down-trending market is one where the price action generally moves down over time and is characterized by lower lows and lower highs.
As you can see in this US30 example, the market was down-trending and then the Bullish Doji Candle formed at the bottom of the trend.
The strong bullish candle a few bars after the Doji formed was good confirmation. The market reversed and went higher.
Bearish Doji Candle Pattern In A Ranging Market
In this US30 example the market was in a range. As the market neared the top of the range two Doji Candles formed.
This was a good indication that there was not enough bullish momentum to break the range and the market fell back.
Bearish Doji Candle Pattern In An Up-Trending Market
An up-trending market is one where the price action generally moves up over time and is characterized by higher highs and higher lows.
In this US30 market example the market was uptrending and a Bearish Doji Candle formed. The uptrend then stalled and reversed.
Doji, Long-legged Doji and Gravestone Doji Candle Significance
As mentioned, this is a fairly common pattern that is a weak signal and is often only significant if forming at the correct part of a trend or with confirmation.
The screenshots below show how often this pattern or candles very close to this pattern can form with little or no significance to the market trend.
Doji Candle Pattern In An Up-Trending Market
Doji Candle Pattern In A Down-Trending Market
Doji Candle Pattern In A Ranging Market
Candle Pattern MT4 Indicator Downloads
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Important Information About Candlestick Patterns
Interpretation Of Candle Patterns:
It is important to note that these patterns were originally identified on the daily timeframes of index charts, which is still where they are the most useful. However, this does not mean that they cannot be used for other markets or time frames.
No signal is perfect and should never be used as such. Any patterns that you identify only signals a potential move based on the fact that history repeats itself and forms regular patterns in similar situations.
But past performance is no guarantee of future results! So always treat these patterns with care and think of these guidelines when using them.
Best practice guide for trading of candle patterns:
- No pattern is ever perfect. Be aware that patterns will form slightly differently each time and in different markets.
- Use them as consistently as possible. Even though you will never find patterns exactly the same, you should always implement a consistent ruleset when identifying and using patterns.
- It is never a guarantee, only an indication.
- Make sure you are using it in the right context. For example if it is a continuation pattern then don’t use it to trade reversals!
- Use multiple signals (confirmations) to have more confidence in your trading.
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More About Candlestick Patterns
If you are interested in reading more about candlestick patterns you can find our articles on this topic here: https://www.nothardtrading.com/category/candle-patterns/ or choose a pattern below to read more.