Doji candle

A doji is a single candlestick with almost no body. Price moved up and down during the period and closed where it opened, so the body is drawn as a thin horizontal line and the wicks form a cross.

The term comes from Japanese candlestick charting, which Steve Nison introduced to Western traders. A doji does not show who is in control. It shows that the side that was in control did not win this period.

There is no exact limit for the body. A common working rule is a body of no more than about a tenth of the candle's full range.

• Standard doji – open and close sit near the middle of the range, with an upper and a lower wick of similar, moderate length. Neutral.
• Long-legged doji – the same cross with very long wicks on both sides. Price swung widely in both directions and came back to the start.
• Gravestone doji – open and close at the low, one long upper wick. Buyers lost the whole gain of the period. Read as bearish after an advance.
• Dragonfly doji – open and close at the high, one long lower wick. Sellers lost the whole drop of the period. Read as bullish after a decline.
• Four-price doji – open, high, low and close are one price, so the candle is a single dash. It appears when trading is very thin and says little about direction.

• Body – open and close are equal or a few ticks apart.
• Size – compare the candle with the ones before it. A doji after several candles with full bodies stands out. On a quiet chart where every candle is small it says little.
• Location – at the end of a clear move or at support or resistance.
• Timeframe – a doji on the daily or 4-hour chart carries more weight than one on the 1-minute chart, where they form all the time.

After a series of rising candles a doji shows that buyers could no longer close the period above its open. It is a warning that the advance is losing strength, not a sell signal.

Traders watch the next candle. A close below the doji's low is read as the start of a pullback or a reversal. A close above its high means the doji was a pause and the trend continues. Nison notes that a doji tends to be a more useful warning at tops than at bottoms.

After a decline a doji shows that sellers failed to close lower. Selling pressure has paused, and a close above the doji's high on the next candle is read as the first sign of a bounce.

A doji between a large falling candle and a large rising candle forms a morning star – a three-candle reversal pattern. Without that follow-through, a doji in a downtrend is often only a pause before the next leg down.

In a sideways market dojis form often. They repeat what the chart already shows – no direction – and add little.

The exception is a doji at the edge of the range. A gravestone at the upper boundary or a dragonfly at the lower one shows that the level was tested and held.

A doji is traded with confirmation, never alone. To see how that works on your market, step through history candle by candle in Replay mode on Charts.

• Wait for the next candle. The doji marks the place, the candle after it gives the direction.
• Entry – after an uptrend, a close below the doji's low. After a downtrend, a close above the doji's high.
• Stop – beyond the other end of the doji: above its high for a short, below its low for a long.
• Target – the nearest support or resistance level, or a fixed multiple of the distance to the stop.
• Filter – rising volume on the confirming candle adds weight to the signal.

• Treating every doji as a reversal – most are pauses inside a trend.
• Entering on the doji itself without waiting for the next candle.
• Ignoring context – a doji in a range or in thin trading carries little information.
• Reading dojis on very low timeframes, where they are mostly noise.
• Placing the stop inside the doji's range – price often retests the high or the low before it moves.