Traders often focus on most types of Japanese candlesticks, but they frequently overlook the Doji candle, even though it is one of the most important candles that can give you early signals of a potential trend change before it happens. Dear reader, this single candle is capable of opening strong profit opportunities if you understand its meaning and how it works. In this article, we will reveal the secrets of the Doji candle and how to use it professionally.
What are the conditions for this pattern to appear?
Where can it form on the chart?
What is the psychological background behind its appearance?
And how can a trader use it to enter high-precision trades?
Definition of the Doji Candlestick Pattern:
It is a single candlestick in which the closing price is equal to the opening price and this applies to all types of Doji candles. The Neutral Doji candle often appears in support and resistance areas and is called the balance candle because it expresses equality between the strength of buyers and sellers. When it appears in a support area this means that the seller is unable to push prices lower because the buyer’s strength is equal to it and therefore the balance candle Doji is formed and the opposite is true at resistance areas. If the Doji candle appears with high trading volumes in support areas this indicates the possibility of prices rising afterward and in resistance areas if it appears with high trading volumes this indicates the possibility of prices falling strongly. It is preferable to wait for a confirmation candle after the Doji whether bullish at support areas or bearish at resistance areas. The Doji candle has four shapes as shown and all of them express indecision by investors regarding selling or buying within the market and therefore balance occurs. How do we trade using this pattern?
When the pattern appears in a support area a buy trade is entered immediately after the pattern forms and the confirmation candle appears the stop loss is placed below the pattern and the targets are set as shown on the chart at a distance equal to three times the stop loss.
When the pattern appears in a resistance area a sell trade is entered immediately after the pattern forms followed by the confirmation candle the stop loss is placed above the pattern and the targets as shown on the chart are set at three times the stop loss.
