Candlesticks – Doji Close
Written by Manuel Guerra
A Doji candlestick formation consists of a single candle having virtually the same opening and closing prices, with shadows of varying length and a very small or non-existent body. The Doji makes up one of the most important reversal candles and takes on different characteristics at the close of a trading session, depending on what kind of Doji is formed.
Doji candlesticks can be separated into three basic types:
- The Dragonfly Doji – this candlestick pattern is typically formed when the opening, high and closing prices are equal, making the candlestick appear as two lines, a horizontal line with a vertical line at the top, representing the high, opening and closing prices. The action depicted in this candlestick consists of the stock or commodity opening at a price, and then trading lower only to rally back to close at the same price it opened.
- The Tombstone or Gravestone Doji – the opposite of the Dragonfly Doji, this candlestick is formed when the opening, low and closing prices are equal, creating the appearance of two lines, a horizontal line with a vertical line at the bottom representing the low, open and closing prices. The action depicted in this candlestick consists of the stock or commodity opening at a price, and then trading higher only to slide back to close at the same price it opened.
- The Long-legged Doji – this type of Doji has long upper and lower shadows, typically of equal length. The price action depicted by this candlestick has the stock or commodity trading in a wide range before ending the session unchanged.
The type of Doji formed will determine a bullish or bearish bias for the following day’s trading action. A Dragonfly Doji at the close typically represents a buying opportunity, a Tombstone Doji will signal a trader to sell, while a Long-legged Doji indicates uncertainty in the market.
Please find below the results of an algorithmic scan of the stock market used to identify which stocks demonstrated a Doji Close and therefore might present a trading opportunity.
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