What is The Doji?
The Doji looks like a cross when viewing your charting platform and has the same opening and closing prices.
When a Doji appears, you know that price has remained mainly unchanged.
This is a display of market indecision which has the potential to result in a market reversal, following a possible consolidation period.
How Do We Trade The Doji?
The Doji is usually traded best when the market has been in a defined trend.
For example, if the market has been in a downtrend, the appearance of The Doji could be an indication of the start of an uptrend.
You can also use The Doji to avoid entering the market. If price has not been in a defined trend, then use The Doji as an indication to simply avoid until another pattern emerges.
In the example below, we see The Doji, following a defined downtrend. Our expectation is that if price breaks above the high of The Doji, then there will be an uptrend following.
We have 2 options as traders. Set a pending order for just above that high, or to wait for the candle body to break the high and enter at market price.
We do not enter until after the full duration of the candle to make sure it is not a fake out.
In the example, price broke and displayed a trend reversal, as we expected with a potential gain of over 400 pips.
In my next lesson, I will be covering the Marubozu candlestick pattern
See you then!