#5: Doji Candlestick
A doji candlestick can both be a bearish signal or a bullish signal. The secret to trading the doji candlestick is understanding where it formed.
For example, if you see a doji candlestick form in a major resistance level, the breakout of the low of that doji candlestick means that the market has a greater probability of heading down. So in this context, it should be a sell signal.
A doji candlestick is a single candlestick pattern. It generally tends to be a very short candlestick, with little to no body at all.
The doji candlestick simply shows a period of indecision where traders are most likely sitting on the sidelines not really wanting to trade and watching and waiting to see which way price moves before taking sides.
Here’s what a doji candlestick looks likes on a chart…notice that price was in an uptrend and after the doji candlestick formed, it changed to a downtrend:
Where Doji Candlestick Patterns Form On A Chart
Look for doji candlestick patterns on:
- resistance levels
- downward trendline touches
- fib retracement levels