The doji is a very powerful reversal candlestick pattern which often appear before a stock crashes or make rapid bull moves. This is one candlestick pattern that you should always take note of.
The doji is extremely important because:
The above picture shows how a doji looks like. There are many variations. Some have smaller highs and lows and some have very small bodies. The clue here is that the open and close are almost at the same area.
What the doji tells us about market participants:
One thing to note is that although there are no winners, it shows you that power is slowly shifting away from one party to the other. For example if the stock has been in a downtrend for some time and you suddenly see a doji appearing, it tells us that the bears are losing control.
When a stock is in an uptrend or downtrend and you suddenly see a doji appearing, it is a warning that a reversal might happen. If you see several doji like candles appearing, then you can be very sure that a reversal is highly probable.
In the chart above, you can see how dojis pointed out two reversals. The first one is a bullish reversal in November and the second one is a bearish reversal. When the dojis appeared, it told us that the momentum from the previous trend is slowing down.
If a picture is worth a thousand words, then a picture of a doji is worth a thousand dollars and perhaps more! Take a look at the charts below and see if you agree with me.
The lesson: The next time you see a doji, pay attention!
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