What is Doji Candlestick Pattern In Cryptocurrency Fields?

KEY TAKEAWAYS 

• The candlestick pattern Doji is a pattern where the closing price and the opening price are equal or approximately equal. 
• Alongside its effective trend reversal identification and forecasting characteristics, the Doji candlestick also provides traders with some significant trading meanings. 
• Just like any other pattern, the Doji candlestick also has its own advantages and disadvantages. 
• The Doji candlestick pattern has various variations; however, in practice, there are only 5 Doji candlestick types that signal strength and are most commonly used by traders. Trading methods with Doji candles are often simple yet highly effective.

The candlestick pattern doji is known as a second candle of the morning doji star candlestick pattern. A doji is a candlestick pattern with an almost non-existent body, formed when the opening and closing prices are nearly equal. 
It resembles a plus sign with a short or long wick. The doji reflects market indecision, showing a tug of war between buyers and sellers, resulting in a close opening and closing price. If a doji appears at the end of an uptrend or downtrend, it signals a weakening trend and an approaching balanced market state.

The Doji candlestick pattern reflects the market's indecision and struggle. Source: learn.bitbns.com

2. WHAT DOES DOJI CANDLESTICK INDICATE?

In addition to its effective trend reversal identification and forecasting capabilities, the candlestick doji patterns also provides traders with some important trading meanings as follows:

• The Doji candlestick indicates uncertainty and a lack of commitment between upward and downward trends, suggesting a potential reversal. However, in strong trends, the market may continue sideways, maintaining the existing trend.
• A diminishing Doji candle after a series of uptrends signals weakening buying strength and exhaustion. This creates an opportunity for sellers to take control, leading to a shift from an uptrend to a downtrend.

3. DOJI STAR CANDLESTICK PATTERN

3.1. Morning Doji Star Candlestick Pattern

The Morning Star Candlestick Pattern is a chart pattern that often appears after a series of bearish candles, signaling a potential reversal. It consists of three candles, similar to bullish doji star candlestick pattern:

• The first candle is a bearish doji candlestick pattern, indicating selling pressure.
• The second candle is a doji candlestick pattern or a small candle with a close near the open.
• The third candle is bullish doji candlestick pattern, showing buying dominance with a close higher than the first candle.

The Morning Star is considered a reversal signal from a downtrend to an uptrend, suggesting a shift in market sentiment.

The Morning Star signals a potential reversal after a bearish trend. Source: dailyfx.com

3.2. Evening Doji Star Candlestick Pattern

The Evening Doji Star Candlestick Pattern is a chart pattern that typically appears after a series of bullish candles, signaling a potential reversal from an uptrend to a downtrend. It consists of three candles:

• The first candle is a bullish doji candlestick pattern, indicating buying dominance.
• The second candle is a doji candlestick pattern, suggesting uncertainty and balance between buyers and sellers.
• The third candle is bearish doji candlestick pattern, showing selling pressure and often closing lower than the close of the first bullish candle, confirming a potential reversal.

The Evening Doji Star pattern may represent the end of an uptrend and a potential shift towards a downtrend.

The Evening Doji Star signals a potential reversal after a bullish trend. Source: libertex.com

4. TYPES OF DOJI CANDLESTICK PATTERN

All doji candlestick patterns have various variations. But in reality, there are only 5 patterns that signal strength and are most commonly used by traders. Specifically, we will list the types of patterns right below:

4.1. Double Doji Candlestick Pattern

The double doji candlestick pattern is a chart pattern that consists of two consecutive doji candles. Each doji candle typically has open and close prices close to each other, resulting in a very short or even no real body.
Meaning
This pattern is often considered a sign of uncertainty in the market. It may appear after a period of price increase or decrease and could indicate a potential reversal. 
However, like any candlestick pattern, confirmation through other factors and validation from additional indicators is crucial to ensure the reliability of the signal. Traders and analysts often use double doji patterns in conjunction with other technical analysis tools to make more informed decisions about market direction.

The double doji candlestick pattern is a chart pattern that consists of two consecutive doji candles. Source: forextraininggroup.com

4.2. Long Legged Doji Candlestick Pattern

The Long-Legged Doji has a slight difference from the Standard Doji in that its body is slightly more extended, and its wicks are relatively long.
Meaning
The Long-Legged Doji signals uncertainty and indecision in an uptrend. After the uptrend, the closing price aligns with the opening price, suggesting hesitation among investors. This often occurs when investors believe the price has peaked and might retrace. 
However, it's crucial to await a clear trading signal from the subsequent candle, which should surpass the lowest price of the Long-Legged Doji for confirmation.

The Long-Legged Doji has a slightly more extended body, and its wicks are relatively long. Source: tradingpdf.net

4.3. Dragon Fly Doji Candlestick Pattern

The Dragonfly Doji has a "T" shape, with only a lower shadow and little to no upper shadow. It appears at the beginning of an uptrend or the end of a downtrend.
Meaning
It indicates that the market is in an upward trend. The Dragonfly Doji is formed when buying volume suddenly increases. In this case, the buying side gains the advantage, and prices are immediately pushed higher. 

The Dragonfly Doji has a "T" shape. Source: trustedspots.org

4.4. Gravestone Doji Candlestick Pattern

The Gravestone Doji has an inverted shape compared to the Dragonfly Doji. This pattern features a very long upper shadow, with the lower shadow virtually disappearing as the opening price matches the closing price and equals the lowest price. 
Meaning
In an uptrend, the Gravestone Doji signals robust selling force, pushing the closing price down to the lowest level. Investors should wait for confirmation from subsequent candles, especially if the next candle breaks through the closing price's resistance level, indicating a potential immediate market reversal—a favorable time for selling.

The gravestone Doji candle has a shape opposite to the dragonfly Doji. Source: 5paisa.com

4.5. Four-price Doji

The 4-price Doji candle, also known as the shadowless Doji, possesses a distinctive shape, simply consisting of a horizontal line without any candlestick shadows.
Meaning
This Doji pattern once again illustrates the lack of decisiveness from the market's controlling side. During such times, the market is extremely quiet, experiencing minimal fluctuations.

The 4-price Doji candle consists of only a horizontal line and has no candlestick shadows. Source: moneyinspires.com

5. HOW TO USE DOJI IN CRYPTOCURRENCY TRADING? 

Doji candles, a potent Japanese candlestick pattern, offer simple yet effective insights into price direction. 

• A long-tailed Doji indicates a fierce struggle, hinting at a potential early reversal. 
• The Dragonfly Doji signals strong buyer control, suggesting an uptrend or a shift from uptrend to downtrend. 
• The Gravestone Doji marks the end of an uptrend, with sellers gaining control. It's essential to confirm the information from the upcoming candle. 
• The 4-price Doji signifies buyer-seller hesitation, indicating the current trend may continue for a few sessions. 

Traders can enhance these signals by combining them with other technical indicators for a robust trading strategy. Two strategies are outlined below:

5.1. Combine with RSI indicator

Many investors use this method due to its simplicity and accuracy. When combining these two tools, market noise signals are minimized, and the efficiency of trade setup is increased. RSI plays a role in detecting trend reversal signals, while Japanese candles determine the timing and appropriate entry position.

5.2. Combine with support and resistance levels

Strong support and resistance areas are regions where price reversals are highly probable. Combining these with Doji candle patterns makes reversal signals much more reliable.
If you're still looking for a platform that provides suitable patterns like doji, you'll definitely love Klarda. Klarda will offer you a platform that provides comprehensive data on candlestick patterns. Not only that, you'll have access not only to the price movement history of the product but also to news surrounding the product, and the psychological trends on social networks, along with potential risk/reward assessments for each product.
And that's all the information we've gathered about the candlestick pattern doji. We hope that this provided information will help you understand doji candlestick patterns better. However, we also want to remind you that this article is only for informational purposes, and there is no investment advice in this article.