There is no surprise that the candlestick patterns are known to any trader working in this business.
As a trader, even if you do not use candlestick analysis, you must at least know how to identify it on the charts and benefit from them. Unfortunately, it is a highly taxing job for most traders to memorize all the formations to detect the candlestick on the chart correctly.
There is good news for traders, and that is that they only need to recognize the relevant formations and not all of them. These are the ones that are considered to be the most reliable. Therefore, it will increase the chances of correctly identifying the entry points.
This article will also introduce you to the Doji candlestick, their types, and different variations in the bullish and bearish patterns.
How to interpret a Doji pattern?
If you cannot detect a Doji pattern on a chart, then you might as well not even be in the business. Yes, it is that crucial to know. It is pretty hard to miss a candle on a chart since you cannot miss it because of its peculiar appearance. The closing and opening prices of it are usually equal. Even if it is short, a Doji with a body is considered an imperfect pattern in the trading business. There are several types of Doji candles. However, you do not need to learn all of the. Simply learn recognizing the Doji candles with a long wick and proximity of the open and close prices.
A Doji candle usually has two long wicks, which are tails in the common language. Therefore, to figure out what is exactly going on in the market, you must pay attention to the candle’s body, if it has one, and its wicks. This way, you will be able to identify the market situation accurately.
Bears and Bulls
If a Doji candle has no body, there is a strong balance between the bears and bulls.
If a candle has a small body, it will indicate that bulls or bears take over the market. But if the body is too short, we cannot establish any dominance. So, the trader must then look at the wicks.
If the wick is medium or large, this indicates significant price fluctuations. A short wick will suggest that the price is moving within a narrow range if the wicks are the same size, power balance between the bears and bulls. If you come across wicks of different sizes, this will indicate a failed attempt of pushing a price in the direction of the long wick.
As a trader, you must keep a close eye and learn how to identify candlesticks and wicks; it is crucial to the trading world. For example, a Doji candle is a highly effective reversal signal for forex traders. However, do not forget the importance of money management in trading.