Different Types of Doji Candles on the Chart: A Comprehensive Guide
Introduction to Doji
Japanese candlesticks, which emerged in the 18th century in rice trading, remain a fundamental tool in technical analysis today. The candlestick charting technique was developed by trader Homma from Sakata, and his discoveries laid the groundwork for contemporary practices. Among all the candles, the Doji candle holds a special place as an indicator of market equilibrium, when the opening and closing prices are equal or nearly so, while the shadows reflect oscillations in both directions. This pattern attracts attention from both professionals and beginners, as it often foreshadows powerful reversals or trend continuations following a pause.
The use of Doji is widespread across the globe: from the New York Stock Exchange to cryptocurrency markets and emerging platforms in Asia. The nature of Doji is universal, and the “language of candles” is understood by any trader regardless of their region.
Basic Concepts of Doji
The Doji candle is constructed based on simple logic:
- Opening price ≈ closing price → minimal body of the candle;
- Upper and lower shadows reflect the extremes of trading;
- The pattern can occur on any timeframe—from minutes to months.
The minimal body indicates that bulls and bears were equal in strength during this period, failing to move the price either up or down. This visual "traffic light" signals the intent of “what is a Doji candle” and “the body and shadows of Doji.”
Types of Doji Candles
Long-legged Doji
Characterized by long shadows both up and down, emphasizing strong volatility within the period. This pattern often appears after sharp movements and warns of a potential reversal or deep correction.
Historical example: During the 2008 financial crisis, the S&P 500 formed a Long-legged Doji with a range of $80-$120 in one day. Following a period of "market testing," a 30% rally ensued.
Gravestone Doji
Features a long upper shadow and virtually no lower shadow. It more frequently occurs at the peaks of trends and serves as a bearish harbinger. The intents of “what is Gravestone Doji” and “Gravestone vs Dragonfly” are fully accounted for in the description.
Example: In January 2021, XYZ stock formed a Gravestone Doji at the $150 level with trading volume twice the average. Within a week, the price corrected down by 15%.
Dragonfly Doji
The opposite of Gravestone Doji: a long lower shadow and minimal upper shadow. It appears at the bottom of a trend and indicates a possible bullish reversal movement.
Example: On the EUR/USD chart on the M15 timeframe, a Dragonfly Doji at the support level of 1.0950 provided scalpers with almost immediate profit of 15 pips following the release of EU GDP data.
Four-price Doji
Opening, high, low, and closing prices coincide, with shadows absent, indicating a complete lull. Four-price Doji is a rare pattern seen in thinly traded instruments or during moments of anticipation of significant news.
For instance, on cryptocurrency exchanges, Four-price Doji often forms before blockchain forks, followed by sharp price movements of up to 8%.
Context and Confirmation of Signals
Doji without confirmation can lead to false entries. Key filters include:
- Trading volume: Doji with volume greater than 1.2× the average are confirmed 68% of the time.
- Confirmatory candles: one to two subsequent candles in the direction of the anticipated movement.
- Support/resistance levels: significant zones add weight to the signal.
- Indicators: RSI, MACD, and moving averages filter out sideways Doji.
This approach caters to the intents of “Doji confirmation by volume,” “confirmation by candles,” and “Doji at support.”
Market Psychology and Doji Signals
The Doji candle reflects the doubt of participants when they are uncertain about the direction before major data releases. During economic reports, political events, and macro news, major players “bide their time,” resulting in Doji formations.
According to a senior analyst at a major hedge fund: “Doji is a time of pause. It’s at this point that large traders make decisive bets, and thereafter the market often moves according to their plan.”
Timeframes and Preventing False Signals
- Daily timeframe: ideal for medium-term swing traders.
- Intraday (M5–M15): popular among scalpers with a high speed of decision-making.
- Weekly/Monthly: Doji on these intervals sets long-term trend reversals.
- Multi-timeframe: confirming Doji across multiple timeframes reduces the likelihood of false signals.
This section addresses the intents of “best timeframes for Doji” and “multi-timeframe analysis.”
Strategies and Risk Management
Reversal Strategies
- Bearish reversal: Gravestone Doji combined with high volume and confirming candles downward. Stop-loss set above the Doji's high.
- Bullish reversal: Dragonfly Doji + confirming candles upward + stop-loss below the Doji's low shadow.
Continuation Strategies
- Inside Doji: Doji within the body of the previous candle indicates consolidation before trend continuation.
- Doji Star: Morning Star or Evening Star, where Doji serves as the middle element of a three-candle formation.
Risk Management
- Stop-loss should be placed beyond the shadow of the Doji.
- Take-profit at support/resistance levels or risk/reward ratio ≥1:2.
- Position size should not exceed 2% of the deposit.
This section concludes the intents of “Doji strategies,” “stop-loss with Doji,” and “take-profit with Doji.”
Comparison of Doji with Other Patterns
| Pattern | Features | Signal | Context |
|---|---|---|---|
| Doji | Body≈0, shadows | Reversal/consolidation | Key levels |
| Hammer | Small body, long lower shadow | Bullish reversal | Bottom of trend |
| Shooting Star | Small body, long upper shadow | Bearish reversal | Top of trend |
| Pin Bar | Small body, one shadow | Quick reversal | Any timeframe |
Practical Cases
Case 1: S&P 500 (January 2022)
Gravestone Doji at the 4,500 level with volume 1.5× the average—a 2% decline over two days. Signal confirmation through volume and subsequent candlestick destroyed the upward movement.
Case 2: EUR/USD (Scalping)
Dragonfly Doji on M15 at the 1.0950 level—instant growth of 15 pips within 20 minutes following the release of U.S. labor market reports. Stop-loss protected against noise fluctuations.
Case 3: Bitcoin
Four-price Doji on H1 formed before a range breakout, after which the price rose by 8%, confirming price explosion.
Case 4: NSE (Tata Motors)
Long-legged Doji at 2× average volume on Tata Motors shares predicted a price drop of 5% within three days, providing an entry point for a short position.
Conclusion
The various types of Doji candles—Long-legged, Gravestone, Dragonfly, and Four-price—provide traders worldwide with insights into the current balance of power and potential reversals or trend continuations. Coupled with volume analysis, support/resistance levels, indicators, and a multi-timeframe approach, Doji becomes a versatile tool for entering and exiting positions. Continuous practice, examination of real cases, and strict risk management will help traders achieve consistent profitability and develop professionalism.
