Understanding Doji Candlestick Patterns in Forex
One of the most important candlestick chart patterns is the Doji pattern. This pattern originated in Japan, and signals a clear reversal pattern. It also represents supply and demand equilibrium in the currency market.
Doji candlestick patterns are studied by forex traders as they provide a fairly reliable picture of the currency market and its future trends. In a candlestick chart spanning a long trading time period, traders can usually see various types of Doji patterns. Nowadays, Doji patterns can also be automatically generated using different types of forex trading software available on the internet.
In a Doji pattern, as the forex prices are supposed to be in equilibrium, you will see that there is little or no “body” in the candlestick.
Long legged Doji pattern
A Long Legged Doji pattern has long upper and lower shadows, of almost equal length. This is an important signal indicating reversal. It also shows that there is indecision prevailing in the currency markets.
Since this is a single candlestick pattern, you should confirm in the form of an opposite move on the next trading day in order to correctly anticipate if a reversal is starting.
Dragonfly Doji pattern
When opening, highest and closing prices are equal, and a long shadow is created by the low, then you have a Dragonfly Doji pattern. This pattern indicates that forex sellers have pushed prices lower.
Gravestone Doji pattern
This pattern is the opposite of the Dragonfly Doji pattern. Having a long upper shadow and no lower shadow, it forms when the opening, highest and closing prices are equal. The highest price creates the long shadow upwards. This pattern indicates that buyers pushed the price up initially, and at the end of the session, they moved the prices up to the level at which the market opened.
Doji Star pattern
The Doji Star pattern is a pattern that can be discerned only if trading has taken place for two days. The pattern starts when the bears start with a strong day in the red/black. On the next day, trading takes place within a limited range. This limited range denotes uncertainty in the currency market. The wicks should not be long in a Doji Star pattern.
Morning Star Doji pattern
The Morning Star Doji pattern requires the Doji Star pattern to be formed for two days. The Doji Star pattern itself also denotes that bears are slowly losing control and bulls will take over the market again.
On the third day, you should then look for a blue/white (i.e. bullish) day with a fairly higher close. This would be the indication of a Morning Star Doji pattern.
Evening Star Doji pattern
This is a three day pattern of bearish reversal. The uptrend starts with a large blue/white body indicating bullishness. The next day, there is a higher opening and the trading is within a small range. It then closes at its opening point. On the third day, the closing is below the midpoint of the body on Day 1.