A Doji occurs when opening & closing<b><a href="http://www.kotaksecurities.com/home/" title="Stock Price">share price</a></b>for a share is the same or very close for that session. Learn about Doji pattern with Kotak Securities - India’s largest <b><a href="http://www.kotaksecurities.com/aboutus/" title="Share Broker">stock brokerage firm</a></b>.
THE MAGIC DOJI
THE MAGIC DOJI
INTRODUCTIONDoji is considered a very significant reversal indicator in candlestickstechnical analysis. A Doji occurs when the open and close for that sessionare the same or very close to being same. The length of shadows can vary.The perfect doji has the same opening and closing price, yet there isflexibility to this rule. If the opening and closing price are within a fewticks of each other, the line could still be considered a doji. But how todecide whether it’s a near doji day or not is very subjective and there areno rigid rules for it.
IDENTIFYING A DOJI• One technique to identify it is based on recent market activity. If the market is at an important market junction or it is mature part of bull or bear move or there are other technical indicators sending out an alert the appearance of near doji should be treated as a doji.• The doji is a distinctive trend signal. However, the likelihood of reversal increases if subsequent candlesticks confirm the doji’s reversal potential. Doji sessions are important only in market 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 .
DOJI AT TOPSDoji are valued for their ability to call market tops. This is especially trueafter a long white candlestick in an uptrend. The reason for the doji’snegative implications in uptrends is because a doji represents indecision.Yet, as good doji are at calling tops, they tend to lose reversal potential indowntrends. The reason may be that a doji reflects a balance betweenbuying and selling forces. With ambivalent market participants, themarket could fall due to its own weight. Because of this doji requires moreconfirmation to signal bottom than they do a top.
TYPES OF DOJI1.) Long legged doji or the rickshaw manThis kind of doji has very long upper and lower shadows or very long legs.This is very important doji at tops. If the opening and closing price or thereal body is near the center the line is referred to as rickshaw man. To theJapanese, a very long upper body or lower shadows represent acandlestick that has lost its sense of direction.
2.) Gravestone dojiThis is yet another distinctive doji. It develops when the opening and theclosing prices are at the low of the day. While it can sometimes be foundat market bottoms, its forte is in calling tops. As shown in the figure belowthe shape of the gravestone doji makes its name appropriate. Thegravestone doji represents the graves of those bulls and bears who havedied defending their territory
3.) Simple doji or near day dojiIt is the most simplest of doji which has very close opening and closingprices or very near opening or closing prices.
DOJI AS SUPPORT AND RESISTANCE Doji is very significant in calling tops and bottoms it can also sometimes turn into support or resistance zones. As shown in the figure 1 below the lower shadow of the doji became a resistance level. The rickshaw man on March 21 in figure 2 gave a clue that the previous uptrend could be reversing. A doji occurring a few hours later give more proof for this outlook. These two doji became a significant resistance area as shown in the figure.Figure 1 Figure 2
CONCLUSIONDoji is of utmost importance in candlesticks studies and are significant inreversal patterns. They are very useful in calling market tops thus theyshould be treated with utmost care in identifying trend reversal.
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